Decline in relative income

Factual Questions
1

I was listening to ‘Marketplace money’ on NPR this morning and the commentator said that dual-income families have less disposable income today than single-income families did in the 70s. This really disturbs me; the trend of having to work ever harder for ever less economic security lies at the root of a lot of what seems to be going wrong in industrial society – the breakdown of social networks and community identity, environmental degradation, children losing out on the freedom of childhood, etc. As a dual-income parent of a darling little 14-month-old boy, I don’t want this to happen to us.

Let me say first that I don’t know what the source is for this claim, and I know economic statistics are particularly subtle and easy to distort. Being that this was NPR I tend to give them the benefit of some doubt, though acknowledging a general liberal bent to their reporting.

So first, does anyone have reason to dispute this?

And if not, it essentially means that on average we’ve become a fair lot poorer (on the order of 50%) than people in the 70s, right? How can this be?

This actually touches on a lot of questions I have regarding economics, the answers to which I generally suspect come down to rich/powerful people taking control over larger shares of the general wealth. (Why bother to disguise my biases – they’ll come out sooner or later). There are a couple of other specific ideas I can come up with: the exponential rise in health care costs; a general increase in what people consider bare necessities (bigger/fancier houses, cars, entertainment systems, etc), although one would think that technological advances would partly offset this, i.e. the cars in the 70s were just as ‘fancy’ relative to the technology of the day. It still seems like a baffling and troubling claim, and it I can’t help but wonder if it’s one of those macro-statistics that reveal a deep pathology in the system that went unnoticed because it’s so hard to observe at the scale of day-to-day life, but that threatens to undo us. (Kind of like global warming, I guess).

ps – Long time doper, first time poster/member. Y’all are a tough- but fair-minded group, and it’s a pleasure to finally become one of you.

2

First of all, I’m not so sure that is the case. It assumes that there is a finite amount of wealth to go around. The answers more likely have to do with rising energy costs, greater foreign competition and rising education and housing costs.

Second of all, I’m not so sure that the 70s are the greatest benchmark of American success. America was in the middle of a recession, there was the oil crisis and people were pretty down about Vietnam.

Really want you want to compare is the change in standard of living over the past 30 years. You can look at economic stats like GDP/GNP, CPI, real annual income and so on, but it might be easier to compare more tangable

  • What % of people own their own homes
  • What % of people own a TV, a computer, etc
  • How many hours a week on average do we work
  • How many vacation days a year do we take?
  • Relative costs of healthcare, housing, education
    Another thing to consider is that there were probably significantly less double-income families in the 70s as the feminist movement was just getting to a point where women were entering the workforce in significant numbers. So in other words, prices in the 70s reflected an economy where mostly one person worked while prices in the 90s reflect an economy where both adults worked.
3

WAG: if the assertion is correct (which I would have to research to form an opinion), then a large contributor is probably interest. As you alluded to, we’re consumers to a much larger degree than our parents and grandparents, and we’re addicted to consumer goods to a much higher degree. All too many of us go into debt to meet this need, so we have, for example:
[ul]
[li]A house that was the middle class American dream after WWII is now considered “small,” “inadequate,” “cheap,” “beneath my means,” “beneath my peer group.” So now dual-income families pool their salaries for what I hear some people call McMansions. Of course market prices vary by region, but I don’t understand why middle class people need $450,000 homes in my part of Michigan.[/li][li]Electronics are irresistable for many of us. An iPod is only $300, so you put it on the credit card, but then these accessories are cheap, too, at only $30, so on the card they go. Before you realize it, you’ve racked up $3000 in debt to the tune of $45 per month in interest alone.[/li][li]Other consumer goods, ala the previous, with the same interest problems.[/li][li]Automobile-related interest. We’ve got to finance, and we’ve got to do it with $0 down. Oil change? Throw it on the Visa. “Spinners”? Throw it on the Discover.[/li][/ul]

4

The best explanation that I’ve read is that the rising costs are due to the increased cost of health care, housing and education. Eduation and housing are linked because people pick expensive houses to get their kids into the best school districts. Harvard Law professor Elizabeth Warren and her daughter wrote a book called The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke which argues this explanation. They argue in the book that, contrary to popular belief, material expenses have gone down instead of up. They say that we spend less on clothing, fuel, cars, electronics, etc. You can read a nice little summary of her book here.

We don’t own that much more than we used to, the average female and male only earn about 10,000 more than we used to in 1960. Compare this moderate increase to the rapid increase in cost of housing, higher education and health care.

5

To answer msmith’s contention that there’s not necessarily a finite supply of wealth, that’s theoretically true. But there’s definitely a finite supply of many of the things that people desire, like housing not too far out from the city you have to work in. Add exploding population levels over the last 40 years, stir, and you have the high housing costs mentioned in the last post.

6

way,way back in the 70’s, I read an article about how life was harder “now” (1970) than in the good old days of the 1950’s. Lots of numbers and economic theories by experts.
But then one sentence stuck in my mind–a little bit of folk wisdom, from a “man-in-the-street” interview. The article compared 2 “average” families then and now, and one guy simply said of his family “yeah, maybe cars are more expensive these days—but it seems like everybody has 2 of 'em. When I was a kid in the 50’s it wasn’t like that”.
and that’s they key to economics—you can’t really compare two different decades, because "it wasnt like that ". Times change, and peoples expectations change with them.
The OP talks of “disposable income”. Well, disposable income is what’s left after you pay for your basic expectations. In the 1970’s parents didnt expect to pay high prices for , say, fancy hi-tech athletic shoes with shock absorbers. You expected to buy a simple pair of Keds , and your kids expected to wear them during gym class, but not anywhere else. Voila! everybody was happy, and you had more disposable income…if you want to stay stuck in 1972. But by 2006, you start complaining …

7

In the UK I can well remember in the street at the back of my house, we had a postman, who was to sole income generator, who had bought his house and supported his family, and had a car, this is in the mid 1960’s.

Today that same house would be completely beyond the reach of a person carrying out the same task, and even if you consider it might be just an area that got popular, a similar house almost anywhere in my former home town would still be well beyond the income of a postman.

One of the huge changes to working patterns is the growth of 2 income families, in the '60’s the wifes income was mainly for small luxuries, nowadays this income is very often equal and commonly more than the male.

All that has happened is that house prices have risen dramatically, rom around 2.5 times a single income to around 4 to 5 times one income.

At one time, in prior to the middle 1960’s you could pretty much work out the types of work that people did by the area they lived, but if you now look at the sorts of places that similar professions can afford, you’ll notice that it generally requires more income than one person can generate, or that person has to take a house somewhere more downmarket.

Quite simply, for whatever reasons, it seems that you need two substantial incomes to live in a place where previously only one income would have been adequate.

It’s true that there is so much more to purchase, and yet in real terms, the cost of those items has fallen relative to income, so we now have two or three cars, more than two tv sets etc - we actually get more stuff for our money and it tends to be more reliable - though also disposable.

8

Yes, it’s purest poppycock.

Median family income, one-earner household, in 1975, in inflation-adjusted dollars: $35,797.

Median family income, two-earner household, in 2004: $71,246.

But hey, don’t let the facts get in the way of a good story.

(Note: This is total income, not disposable income. Disposable income is total income minus taxes [not minus other living expenses–that’s “discretionary income”]. I don’t have the figures for disposable income, but taxes weren’t that much different in the 1970’s than they are today.)

9

Right, but it’s not like the wealthy are hoarding all the middle income housing, which was my point. There’s just a lot more middle income people and all of them want these big McMansion homes in the suburbs. I was down in the DC area and people I spoke to don’t even think of them as large houses…they’re just “houses”. So yes, the fact that they keep making more people but they don’t make any more land does drive up the housing costs.

10

One of problem is that neither the NPR commentator nor I attempted to define disposable income. While one can’t argue the statistics cited above, the fact remains that many families feel that they need two full-time incomes to afford ‘basic necessities’.

I think the key question that’s emerging here is whether that perception corresponds to reality – i.e., whether the increased expenditures are really on necessities such as health care and housing or whether it’s more about increased expectations for what we need.

Part of the problem is that these two alternatives are not totally separable. For instance, we’ve been casually shopping for real estate, and I’m finding that the areas that are nice to live in (well-maintained, near parks and urban centers, good school districts) have no moderately-priced housing options, and the places that do have affordable and modestly-sized homes are in areas that would not offer a reasonable quality of life, esp. now that I have a kid. Similarly, it was less obligatory to get your kid a college education in the 70s than it is now. So while it may be true that people’s expectations have risen, I think there may in some cases be no alternative to living a pricier life than our forebearers. This is probably due, as msmith points out, to market responses to increasing numbers of dual-income families as women enter the workforce.

Now I have a topic for GD: do we agree that this is detrimental to society and if so how do we reverse it? (I pose this here rhetorically, of course, being that I’m in GQ and all).

11

One of problem is that neither the NPR commentator nor I attempted to define disposable income. While one can’t argue the statistics cited above, the fact remains that many families feel that they need two full-time incomes to afford ‘basic necessities’.

I think the key question that’s emerging here is whether that perception corresponds to reality – i.e., whether the increased expenditures are really on necessities such as health care and housing or whether it’s more about increased expectations for what we need.

Part of the problem is that these two alternatives are not totally separable. For instance, we’ve been casually shopping for real estate, and I’m finding that the areas that are nice to live in (well-maintained, near parks and urban centers, good school districts) have no moderately-priced housing options, and the places that do have affordable and modestly-sized homes are in areas that would not offer a reasonable quality of life, esp. now that I have a kid. Similarly, it was less obligatory to get your kid a college education in the 70s than it is now. So while it may be true that people’s expectations have risen, I think there may in some cases be no alternative to living a pricier life than our forebearers. This is probably due, as msmith points out, to market responses to increasing numbers of dual-income families as women enter the workforce.

Now I have a topic for GD: do we agree that the increasing need for two incomes is detrimental to society and if so how do we reverse it? (I pose this here rhetorically, of course, being that I’m in GQ and all).

12

(My apologies for the dual post – you’ll note in the former an unfortunate ambiguity in the last sentance that might have been taken to suggest that women entering the workforce is detrimental to society…let’s just make sure we’re clear that that is NOT my contention…)

13

Not sure if I believe the statistics, but even if they are true think of how the quality of products you buy has changed since the 70s (as other have hit on)

  • Cars are MUCH nicer than they used to be. (Safer, more confortable, more powerful, more reliable, you name it)

  • The average house is larger, and I would venture to guess, better furnished.

  • Health care is much more expensive, but you have a heck of a lot more options. That is, treatments and drugs available today couldn’t be had at any price in 1970.

  • Availability of information is off the chart compared to 1970.

  • More choices and better quality food, leisure activities, travel, and entertainment options comparing today and 1970.

  • No cite, but I bet we just have more stuff today.

Show a well off 1970s guy your Honda Accord, Ipod, Internet connection, Prozac, cell phone, and 150 flavors of corn chips and see if he wants to tell you how much better he has it.

14

No. It is a sign we have more options of things to buy as consumers. That is good, ignoring externalities of increased consumption.

15

First, apologies for the “Don’t let the facts get in the way of a good story” comment; it probably sounded like snark directed at you personally although I didn’t mean it that way.

The problem, though, is that “disposable income” has a standard economic definition. If NPR used it, and meant anything other than “after-tax income”, they were wrong.

It’s possible, certainly, that income doubled, but perceptions of “basic need” increased by 2.5. That would leave us all feeling worse off.

But you know what? People complained in the 1970’s, too–constantly. It’s human nature to think that we’re always working harder, and earning less, than ever before.

16

I have heard this debate settled (at least in my mind) by saying truthfully that anyone can have exactly what the average person had in 1970 or 1950 for that matter for less cost than they did then. The question is, who wants to? That is, who really wants that 1100 square foot ranch house with one car, a wife that stays home, a crappy TV, and a doctor that makes house-calls but can’t actually do much of anything? The standards have gotten to be much higher.

17

I’m always wary of “medians” (much beloved of realtors and other purveyors of dubious truth). If the figure for the top family income, one-earner household has risen massively while most family income, one-earner households have not, the median will rise but the rise will be unrepresentative.

What would “means” show, applied to the same figures?

18

Actually, I should have looked at your cite first: the mean figures are even more dramatically contradictory of the OP.

19

Actually, don’t you have this exactly backwards? If only a few people have a massively increased income, the median doesn’t change much, if at all, but the mean might increase dramatically. The median is the 50th percentile line–half the population being measured is above and half below.

The conclusion is basically correct though–it’s good to know both median and mean. It’s also helpful to have some sense of the “shape” of the distribution, which commonly is expressed by giving statistics by population quintile or decile (basically like the median, but with more points).

-Rick

20

Sorry, I’ve completely confused myself. If anyone needs me, I’ll be under that rock over there, pretending my posts in this thread don’t exist.