Where are the wage gains coming from in two-earner families?

by on July 11, 2011 at 3:53 pm in Data Source | Permalink

Among two-parent families, median earnings did rise by an inflation-adjusted 23% from 1975 to 2009. But the parents’ combined hours worked increased by 26% during the same period–accounting for most of the income gains.

Here is more, I await comment from Scott Winship.

spencer July 11, 2011 at 4:50 pm

Many people argue that these numbers do not matter because it is an average and does not show what actually happens to any individual. They like to argue that as people age they get higher salaries and this in particular makes these comparisons useless.

But interestingly, over the last few decades the baby boomers moving through the age structure means that the age of the average workers has actually risen. I estimate that if you held everything else constant that the maturing of the baby boomers should have raised the average wage by several percentage points since 1980..

But this does imply that the problem is actually much worse than the averages suggest?

Cliff July 11, 2011 at 5:18 pm

Well, it’s not an average, it’s a median. Which is pretty important.

Wonks Anonymous July 11, 2011 at 6:40 pm

Technically, “average” can mean any of mean, median and mode. But usually when people say “average” they are referring to the arithmetic mean.

quadruple July 12, 2011 at 12:28 am

Seriously? I’ve never seen it as referring to anything but mean, and my background is in mathematics…

TGGP July 13, 2011 at 9:36 pm

“There are many different descriptive statistics that can be chosen as a measurement of the central tendency of the data items. These include arithmetic mean, the median and the mode.”
http://en.wikipedia.org/wiki/Average
Dict.org also contains definitions from WordNet encompassing those:
http://www.dict.org/bin/Dict?Form=Dict2&Database=*&Query=average

The Engineer July 11, 2011 at 5:20 pm

Household income is highly correlated (R^2 = 0.96) to the hours worked, education achieved, and how many income earners are in the household.

http://bluecountyredstate.blogspot.com/2011/06/what-does-it-take-to-not-be-poor-in.html

liberalarts July 11, 2011 at 5:21 pm

Still sounds like a gain to me. I bet more of the hours increase comes on the female side of the family. Since those wages were (and still are) lower than men’s average wages, then the numbers suggest a gain.

Slocum July 11, 2011 at 5:31 pm

The wage gains are hidden in seriously overestimated rates of inflation. And it’s not just sexy, newfangled gizmos — as Don Boudreaux has pointed out, all kinds of old boring goods have shown significant deflation. It’s simply not the case that everything requires as many hours of work as in 1975, but families work 25% more hours — durable goods, food, clothing, automobiles, air-travel all require many fewer hours of labor. There have been three main exceptions to the general deflationary pattern (all, not coincidentally, markets with heavy government interference: housing, heath-care, and higher-education). Three bubbles — with one already popped and another getting squishy. A even in housing (more square feet, more and better amenities) and health care (statin drugs, minimally invasive surgery, joint replacement), there have been significant improvements mixed in with the bubbles. I have a difficult time accepting that Tyler really believes Americans are no better off than in 1975 (except insofar as they put in more hours of paid work).

joan July 11, 2011 at 8:34 pm

If mis measure of inflation is causing an error in real wages and incomes it is also causing an error in the GDP, so we then have to explain why GDP continued to grow like it did in the post WWII decades but wages wages grew at only half the post WWII rates.. If is not slow growth and structural; changes in the economy due to technology as Tyler claims, then another possibility is Reaganomics, and I would think than conservatives would prefer Tyler theory

Slocum July 11, 2011 at 10:17 pm

True enough. But there’s still an enormous difference between these two claims:

1. Median-income Americans have not increased their standard of living at all in the last 35 years (except by working more hours or pressing additional family members into paid work) vs
2. Median-income American have experienced a rapid improvement in living standards in the last 35 years even though the increase is much slower than GDP growth.

If #2 is true, then we might reasonably conclude that the rise in inequality is worth it given the steady stream of benefits (e.g. not only smart-phones and HD video cameras but boring old home appliances that cost the average worker half as many hours of paid labor as before), and we’d better be really careful about screwing up a generally good thing. On the other hand, if #1 is true, then something must be profoundly broken with our economic system and perhaps we should consider major surgery. But if #2 is true (as I strongly believe it is), we *really* don’t want to be making political and policy decisions based on a flawed diagnosis of condition #1 (which we’re deluded into believing because of a faulty measure of inflation — producing an error that grows ever larger through annual compounding).

I was already a teenager in 1975 and remember it pretty clearly. If I were sent back there now, It’d feel a lot like I’d been sent to some Eastern Block country. The cars were heavy and unsafe and they broke down a lot and didn’t last long (I remember working with my Dad to apply ‘bondo’ to patch rust holes in a Chevy that was no more than 5 or 6 years old at the time). When I was old enough to drive it a few years later, I put in an 8-track deck. The food was bland and lousy. I had a darkroom in the basement — it’s mind boggling to me now what a cumbersome, expensive process that was. My Dad was a college grad with a white-collar job, but we lived in a 1300 square foot brick ranch (4 kids and 1 bathroom). In the few years before that, we’d added air conditioning, a paved driveway, and a *color* TV. We had a ‘Pong’ video game. We had no microwave or VCR. Our family had never flown on a vacation (none of my friends families had either). My Mom ironed patches on our jeans and darned holes in our socks. There was nothing in the known universe like Whole Foods. I could go on and on — to me, the idea that living standards are no better now than 35 years ago (or even only 25% better due to more paid labor) doesn’t come close to passing the giggle test.

dave July 11, 2011 at 11:16 pm

“I could go on and on — to me, the idea that living standards are no better now than 35 years ago (or even only 25% better due to more paid labor) doesn’t come close to passing the giggle test.”

Because you are an above average knowledge worker, not a blue collar factory worker. My Dad supported a family on one salary. A person doing that same job could not do so today. My mom took classes at city college for tuition should could pay with a part time job. Though I got scholarships for good SAT scores, the college I went to has a $50,000 a year tuition. For the median household I think inflation is, if anything, understated. Worse, the things that you brag about, Ipods and flat screens, are not necessities. Medical care, education, and housing (even post bubble) are things people need.

Slocum July 12, 2011 at 7:25 am

“Because you are an above average knowledge worker, not a blue collar factory worker.”

No. If you go by any number of consumption measures — frequency of dining out, airline travel, square feet of living-space per person, articles of clothing owned, second and third-car ownership, etc — median-income Americans are living much better than in 1975 (and that’s even ignoring mobile phones, computers, electronics, and the Internet).

Education is a special case, but there’s very good reason to believe it’s institutional pathology, not inflation. And it’s not even “Baumol’s cost disease” — consider that it may even be the case that the people directly providing classroom instruction to students are paid *less*, on average, than they were in 1975 because of the widespread trend of replacing tenured faculty with poorly-paid adjuncts. Out-of-control administrative bloat (enabled by easy-money student loans) is the big problem.

Floccina July 12, 2011 at 9:55 am

If we lived like our dads we would have fat saving accounts.

rpl July 13, 2011 at 8:09 am

Because you are an above average knowledge worker, not a blue collar factory worker.

In addition to what Slocum said, this is not particularly relevant because many of the people who would have become blue-collar workers a generation ago in today’s job market end up doing some sort of office work. “Blue collar” is no longer synonymous with “average Joe”.

Indeed, you could have leveled the same argument at factory workers during their heyday: “Sure, life is pretty good if you’ve got a good factory job, but a textile worker (or field laborer, if you prefer) today wouldn’t be able to support his family.” Well, ok, but so what? By that time hardly anyone worked as textile workers (or field laborers). They were all working in factories.

rpl July 13, 2011 at 8:16 am

Worse, the things that you brag about, Ipods and flat screens, are not necessities. Medical care, education, and housing (even post bubble) are things people need.

Whoops, missed this part (I had thought it was in another user’s post).

Anyhow, quality of life is largely about what you can consume once the necessities are taken care of. Suppose you spend 90% of your income on necessities and 10% on other stuff, and suppose that after 20 years you’ve broken even on the necessities (i.e., you still spend about 90% and get about the same amount for it), but you get vastly more for the 10% that you spend on other stuff. Measures like “real median income” are going to show stagnation because that 10% isn’t a big factor in your total spending. However, it will have a disproportionate effect on your overall standard of living precisely because it represents the stuff you buy because you want to, not because you have to.

Floccina July 12, 2011 at 9:52 am

Slocum,
That is how I remember 1975 also and my family was fairly affluent. I grew up in Providence IR and I had neighbors who had never left the state. I had never been to a sit down restaurant with my family. Most middle class families had one car. We all had 4 TV channels. We carefully divided all meat for us children, people were thinner because food was not so cheap. In our days even the poor are fat! Few had dish washers those that did had dish washers that did not work. Bicycles were mostly way worse and a decent one more than you would pay for it today. As you said the cars were crap compared to today’s cars. I could go on.

Today everything is great and nobody is happy.

mjw149 July 12, 2011 at 2:55 pm

Ok, now move to the inner-city and let me know how ‘great’ things are. Of course the rich are happy in every era, you’re keeping the independent variable constant: high wage. The argument is that people make less for the same effort. Now you can argue they’re better off, but what’s your evidence?

rpl July 13, 2011 at 8:03 am

So, in mjw149′s world you either live in a ghetto, or you’re “rich” (and therefore your quality of life presumably doesn’t count). Weird. Also, even if you’re going to argue that things aren’t “great” in the inner city (where the suburbs set the standard for “great”? I’m unclear on what the argument actually is here), isn’t the relevant comparison between the inner city of today and the inner city of 1975? Are you seriously prepared to argue that the standard of living in a modern inner city is no better than it was in a comparable neighborhood in 1975?

Floccina July 12, 2011 at 9:23 am

I have a difficult time accepting that Tyler really believes Americans are no better off than in 1975 (except insofar as they put in more hours of paid work).

Tyler accepts what you said, he only contends that median income growth have been slower than in the period from 1950 to 1973, not that growth has stopped. He accepts that inflation is over estimated.

Nick Bradley July 12, 2011 at 2:06 pm

I wholeheartedly agree with you — basically the thesis presented in ‘myth of rich and poor’. The CPI does an awful job of measuring the cost of living

athEIst July 11, 2011 at 5:38 pm

Well yeah, 26% is most of 23%

Rose July 11, 2011 at 7:47 pm

You should add a +1 button to your posts!

ChrisA July 11, 2011 at 7:55 pm

How have people been able to increase the hours worked by so much? Maybe this effect is due to new technology and services in the home (for example better prepared meals) which have allowed them to substitute paid labour for unpaid labour. How is this accounted for in the stagnation (sorry slow down of growth) thesis?

J Thomas July 11, 2011 at 10:11 pm

Median wages for men in two-parent families, adjusted for inflation, declined 7% over the 35-year period, putting them at $46,400 a year in 2009, the latest year for which such data are available, the research found. Women, meanwhile, entered the labor market and increased the overall number of hours worked by each family — earning enough to more than offset the men’s wage drop.

So, women used to work part time. Now more of them work full-time and make more money per hour than before. So combined they make almost as much per hour as before too.

Median earnings fell 5% from 2007 to 2009 for a two-parent family, which was less than the 6.6% drop to about $28,000 for the broader civilian population, ages 30-50. Single-parent families fared worse, with their median earnings declining18% to $16,500.

So, they work harder and get by.

How? By sleeping less, and if they have children they don’t see them until after the commute home. If they don’t have children, they don’t get children. Things like that. Spend the weekends cleaning house. They get by.

ChrisA July 11, 2011 at 11:52 pm

Well maybe women are working harder now, but why didn’t they do that before? Were women lazier in the past? Or did old time capitalists scorn the free lunch of hire women and preferred to bid up prices for men? These seem unlikely to me to be good explanations of why women are working more now.

mulp July 12, 2011 at 12:23 am

Women in many communities did church work, social clubs that had public service aspects, and a big one, helping their kids at school via PTA fund raisers, being home when their kids came home from school, girl and boy scouts, and other family and community things.

Today people talk about the decline of the family and community as if that is a loss. Is it?

John Thacker July 11, 2011 at 7:56 pm

It’s coming from women working, and especially coming from a combination of:

1) Women in high-earner families especially being more likely to work instead of being homemakers, and
2) Divorce hitting, on average, lower income families worse than higher income families.

1) and 2) means that “two-earner families” are not the same percentage or slice of the population in 1975 as now. The yuppie/dinc/etc. power couples joined the two-earner family paradigm at the same time as two-parent, much less two-earner, families became less common among the poor.

Luke Lea July 12, 2011 at 12:42 am

And keep in mind that a lot of that extra income was spent on transportation, childcare, fast food, and clothing. Plus it helped bid up the price of real estate. I recently heard reference to the idea of “forced labor” — the notion that once the trend towards two-earner families got well underway many single-earner families were forced to follow suit or they wouldn’t be able to afford a home in a nice neighborhood.

tod shoe July 12, 2011 at 5:37 am

I’ve already bookmarked this article and will definitely refer this article to all my close friends and colleagues. Thanks for posting!

Floccina July 12, 2011 at 10:00 am

I like to compare what a minimum wage hour bought then and what it buys now. It buys much more now.

spencer July 12, 2011 at 11:05 am

Except for housing, medicine & education that account for over half the consumer basket.

H July 12, 2011 at 11:15 am

I’d like to second the opinions of Floccina in several comments above. I grew up (HS grad ’70) in a one income household.

To explore whether you could live in a one income household, you have to think about living like we did: cancel cable, cancel internet, cancel cell phones, cancel expensive vacations (spend your vacations visiting relatives and sleeping in their houses), cut your restaurant visits to less than 10 a year (and make those visits to family type restaurants, in the Appleby’s class), take your kids out of pre-school/child care; get rid of all except one family car. And you save commuting/work clothes/lunch out costs for the spouse who no longer works away from home. THis looks to me like $40K or so in expenditures, or $60-75K in pre-tax income.

So I’m not convinced by the claim that “a family today can’t live on a single income the way our parents did.” The correct claim is: “we can’t live today in the fashion to which we are accustomed without a second income.”

dave July 13, 2011 at 10:44 am

“THis looks to me like $40K or so in expenditures, or $60-75K in pre-tax income.”

So much more then a median income.

John August 5, 2011 at 8:47 am

i believe inflation is solely a money issue, i dont believe it has anything to do with fiscal policy. because of that, i’d be interested to see if we just look at the growth of the money supply, does it match or is it close to the growth of our price indicies? you’d think they’d be pretty close, as rising prices result from our ever growing money supply. if the index growth is much higher than the money supply growth, the numbers must be overstated

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