Where the money went

This was the wormseye I wrote off the back of various comments on an earlier post. Thanks to Quinn and Billmon for facts and ideas.

If there was one thing which everyone knows, it is that Americans have grown richer since 1970. When I was told that average wages have actually declined since then, when adjusted for inflation, I did not at first believe it. But the figures, from US department of Labor, are quite unambiguous. Measured in real dollars, most workers in the US are now paid worse than they were in 1970. Measured in constant (1982) dollars, the average weekly wage in June 1970 was about $312 ; last month it was about $275.


This is much less, in both absolute and relative terms, than one would suppose from the American media, or from travelling in reasonable comfort around the country. It may even explain the quality of rancid resentful hatred which is so notable a feature of modern American politics. It means that the overwhelming majority of American voters have spent most of their lives in a country where they have had to work harder and hard to earn the same money, while everything all around says they have never been so prosperous.

Of course these figure conceal a huge expansion in employment, and a huge shift in the ways that people are employed. Any shift from industrial jobs to service industry ones is in large part a change from well-paid jobs done by men to poorly paid jobs done by women. So two-earner households are almost certainly much better off in terms of constant dollars than they were thirty years ago. But the single-earner household is much worse off.

A friend of mine in Silicon Valley pointed out that her mother, a Bohemian type in the early 1970s, had “an apartment, a little baby, an unemployed spouse, and a drug habit”, which she was able to support more or less on a minimum wage job. This would simply be impossible now, she says. Mothers must work.

For mothers with interesting paid jobs, this is fine. For those without decent jobs, it seems a huge waste of effort or worse. I really can’t see that women are better employed in fast food joints or call centres than at home. I can’t even see that many of them are better employed in the army. Of course, this isn’t my choice to make. But it isn’t their choice either. What these statistics say is that it is just about impossible for households to survive on a single normal wage. You can justify this in all sorts of ways, and it may indeed be inevitable. But it it’s not something, I believe, that people would vote for, given the choice. The fact that they can’t vote against it must add to the general disillusion with the political system.

It must also add a great deal to the rage and embitterment of the Christian or traditionalist Right. Not all the gays in the world getting married live on television could do so much to destroy the patterns of marriage and family life in which they believe as these wage statistics have done. And they have nothing to do with feminism, militant or otherwise. It is simply the development of the modern American economy — but of course this can’t be said or thought. So they blame the feminists, the liberals, the democrats, the elites.

It is the quality of rancid dispossession, the feeling of being cheated, which is the most notable quality of modern right wingery; and it is unusual. The temptation, for liberals, is to dismiss it as nostalgia for the Fifties, and for a mindlessly conventional society in which many people were oppressed. But I think this is silly. There are some things from the Fifties that no one could miss, though most of them are technological inadequacies. There are many things that no one should miss, most to do with racism and the persecution of minorities. But there are important and worthwhile things that anyone would miss if they remembered them: chief among them is the reasonable expectation that things would go on getting better for ordinary people and their families.

The age statistics suggest that they got steadily worse throughout the Reagan years and they are — of course — getting worse now; in fact only the latter half of the Clinton presidency was a time of sustained real wage growth. All this would be gloomy enough on its own. But towering over the whole thing is the spectre of the truly unfathomable indebtedness of the USA.

Leave aside the reckless government deficit. Leave aside the absurd figures for housing debt. Just concentrate on credit cards. Using the figure for March this year, the average worker would have to work for two months without spending any money at all on anything, or paying any taxes either, before they had paid off the average credit card debt. How can people live like that, in a society with no security of employment? No wonder they turn to God in such numbers. Mammon has not been their friend.

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18 Responses to Where the money went

  1. blake says:

    I am definitely one of those that feel cheated. My wife and I made the decision that we wanted her to be a full-time Mom to our baby daughter. I have a job that I think pays very well. Yet we can’t afford two cars or anything more than a two-bedroom apartment, and we have a lot of credit card debt. Most of this has to do with our own lack of thrift back when we were a two income household, before our daughter was born. But what really stings is seeing my neighbors and co-workers buying new cars and taking expensive vacations. Where do they get the money for this stuff? They either don’t have kids, have two incomes in the household, or they must have even more debt than we do.

    The crappy thing about it all is the stigma against asking people about their financial situation in real terms. The taboo is as strong as asking people about their sexual habits. I wish I could get just a little damn perspective from the people I know.

  2. quinn says:

    i think my mother will be amused at being called bohemian. 🙂

  3. Thomas Hawk says:

    An extremely interesting and informative essay. A couple of questions come to mind though.

    1. I’d love to see the sources cited for these statistics as to average wage, inflation, etc.

    2. Would you rather live in 1950 and have $312 per week or today and have $275. Is there any value in the advancements in technology that add to our comfort? In 1950 would you have agreed to pay $37 a week for much of the comforts and improved access to education, information, etc. that we have today?

    3. How does this information compute when looking at median data rather than average data? Are there any thoughts as to what is better to use and interpretation or analysis of either.

    4. What about average or median assets. Although incomes could be down, are people better off because of more inflation adjusted dollars in home equity, etc.

    5. If I have debt but it is versus an asset, home, stocks, etc. and I am using the debt as a tool for additioanal wealth development (i.e. calculated leverage) am I still worse off?

    5. Is the average job better today? What about the expansion of the information economy and the opportunities created there. Is this work more enjoyable to perform than other types of work.

    6. Personaly, although I can understand a lot of fear in the world today and whether it is coming from the left and the world will be blown up by nuclear weapons in 50 years or so poluted that no one would want to live her, or from the right about the breakdown of the family and the ensuing coming destruction, I have much hope for the future and especially the technological changes that may come about. If I could, in a strange way, choose to have been born in 1950, 1970, 2000, or 2020 I would choose 2020 as I think that, regardless of my income, technological advancements in both science and medicine would create a better world to live in.

    Thanks for the nice article.

    Tom

    http://thomashawk.com

  4. el Patron says:

    Two cars! There’s an interesting point. I’ve only ever owned three cars in my entire life, and I am nearly fifty. Some of the time I couldn’t afford one. When I lived in Central London I just hired one at need. Now I live within walking distance of the supermarket; my daughter walks to school. I take the train when I need to go to London, and quite often I take a taxi or walk to the station, rather than tryig to find a car parking place there. Oh yes, and my wife refuses to drive. All these are quality of life decisions, though. I am able to live so that my car is much of the time the most expensive piece of fishing tackle I own.

    the point of course is in large parts of the USA life without a car is just not a practical option, which makes people poorer in some important sense.

  5. el Patron says:

    Tom:
    1) the statistics come from the “US census”:http://quickfacts.census.gov/qfd/states/00000lk.html and the department of “labor”:http://data.bls.gov/cgi-bin/surveymost web site. Credit card debt came from a recent USA TOday story.

    2)It was 1970, not 1950. Apart from computers and such, I think life may well have been better in 1970.

    3) most of the data I used is median, which is more informative than mean in these contexts. I wanted to know how life is for most people.

    As for the point about credit backed by assets — well, that depends on how well you think your assets are going to hold their values. I wouldn’t trust anything denominated in dollars to hold up well over the next thirty years or so.

    5) My impression is that the average job today is much nastier than in 1970, largely becasue of computers. The poor are pooorer and the middle classes are successively de-skilled, de-professionalised, and treated as battery chickens playig video games. Oh, and they have to work harder.

  6. Tom Hawk says:

    Thanks for the response.

    The labor link about references a deleted page and I’m not sure which U.S. Census report to reference on the other link. I’d love to see a link to the data from June 1970 and last month. It’s quite interesting.

    I agree with your comments on median data. This is the better measure to look at.

    I still think that assets are important to look at. I wonder what inflation adjusted median home assets (home equity, 401ks and IRAs, brokerage accounts, etc.) look like in comparison.

    I think it would also be interesting to look at tax rates between the two time periods. Are taxes higher or lower. I very well could have more after tax income last month if they were lower — not sure, just a thought.

    The future value of assets is speculation and nobody knows for sure. I tend to be more optimistic with regards to growth on my assets but that’s just me. I don’t think anyone can predict future growth of assets and if one was so inclined they could also invest their assets in non dollar denominated securities if they felt this was a better opportunity.

    Also assets accumulated even with minimal growth at the rate of inflation (inflation protected bonds for instance) still could provide people a better future than they might have expected in 1970.

    What about life expectancy. Has it increased for the poor between 1970 and today and is this generally regarded by the poor as a positive thing? Can an economic value be assigned to life expectancy. My guess is not.

    On a personal level it’s hard for me to evaluate the subjective state of the average job. I might say that being a customer service rep for an insurance company in an air conditioned building sitting down all day for instance could be preferable to picking corn in the hot sun out in a field but this is purely a matter of preference and taste. I’m sure some would rather work outside in the sunshine getting exercise.

    As to the poor being poorer, it might be possible — not sure, but possible — that with more after tax income and more assets that they are not actually poorer after all. Just a thought.

    It’s difficult for me to have an accurate subjective impression of the general quality of life for the poor and the impact of technology when I do not live in that world personally.

    Thanks again for the article and the dialog that you are creating regarding this very important topic.

    Tom

  7. Tom Hawk says:

    Just as an aside, I pulled up the number for personal income on my Bloomberg terminal got a yearly number of $841.10 for 12/31/1970 and $9,078 for 12/31/02. Similarly I ran the CPI Index number which appears to be at 39.8 for 12/31/1970 and 181.6 for 12/31/2002.

    If I multiply the 1970 number by the difference in the CPI, i.e. $841.10 x 4.5628 I get $3837.78.

    I’m not an economist and am sure I’m doing my math wrong in here somewhere but this would lead me to believe that personal incomes today are at $9,078 and in inflation adjusted dollars were $3,837.78 in 1970.

    According to Bloomberg, personal income is the chief determinant of consumer ability to spend. The most important component of personal income for near-term spending prospects is wages and salaries (both private and government) which make up about 60% of personal income. The chief remaining compnents are other labor income (mostly fringe benefits), proprietors income (farm and nonfarm), interest and dividend income, rental income and transfer payments.

  8. CHip says:

    Tom: I would expect mean data would look better than median, because statistics also make it clear that the ratio of executive salaries to employees’ salaries has gotten much higher over the past few decades; an extreme tail on a curve distorts the mean more than the median.

    And I will conceded that some toys have gotten nicer and cheaper in the past decades; I get heavy use out of a home computer, although I watch very little TV, don’t use a camcorder, etc. OTOH I estimate my parents’ house sold for about 4 times my father’s salary, which is in line with estimates on the current value of my house — but my parents’ house was over twice the size of mine, they probably paid a much lower interest rate, and my father had stable job from which he retired where I expect my work opportunities will just wither away; I understand this is typical for a of the U.S., not just my SF-fannish circle. I suspect the actual numbers are less of a heart-killer than that uncertainty about where \any/ next paycheck, even minimum-wage, will come from.

    And does our patron have any numbers on the retirement situation today? I read qualitative statements about fewer people covered by pensions, and quantitative about tiny retirement savings (I’ve seen figures in the $25-50K range); that’s another contributor to embittering uncertainty.

  9. Therese says:

    Take a good look at history.

    Then, tell me if a household supported by only one working person is the norm.

    The nineteenth century burghers were among the first commoners to not let their women help supporting the family, and they did it just to be different from the workers.

    If nineteenth century burghers are your ideal in terms of family structure, I feel sorry for you.

  10. el Patron says:

    Hej, Therese. Nothing like a cross Swede to liven up a blog. My point is not that women shouldn’t work. I got my own start in journalism while my wife worked and I lived on Swedish paternity leave. But I do think that for many parents, in many jobs, paid work is less interesting and rewarding than the work of looking after small children, which, arguably, rewards society more too. What I would like to see is the possibility of choice, and this has been steadily diminishing for most people.

    Obviously, everyone works almost all the time in most pre-industrial societies. It’s only since the 19th century that large numbers of people have had any choice about it. It’s not really susproising if a preference for doing less work emerges.

  11. el Patron says:

    Tom — I’m sorry if the links broke. I pulled them out of my history file without looking too closely. but it’s really not hard to find the figures, and they are official. The dep’t of Labour has some tables converted to 1982 dollars, so those are the constants I used.

    I don’t know how the Bloomberg statistics fit; whether they are mean or media. But since they only allow a 60% share to wages — which was the only figure I was measuring — it’s quite possible that they don’t disagree. I’m not saying that the rich haven’t got richer. Obviously they have.

  12. Thomas Hawk says:

    Did some google searching around and still cannot find the Dept. of Labor tables. Still not convinced that wages have actually gone down — although not suggesting that they did not.

    I would still assert that in general we are better off today than 1970. Although there may be segments of the income ladder that are not, the amount worse off is probably minimal and possibly even statistically irrelevent. Certainly, according to the Bloomberg numbers on average (yes perhaps skewed more towards the upper half of incomes) we are substantially better off.

    Whether or not one’s house is smaller or larger than their parents is largely anticdodal subjective interpretation and of little value. My first house that I purchased was larger than my parents first and my second almost 3 times as large as their second. Again, this is irrelevent as no meaningful observations can be made from my limited personal situation. My first house, interesting enough was larger than my grandparents last.

    What about education? Has this improved since 1970? Are more or less people college educated these days?

    With stock and investment ownership at the highest levels of household ownership ever, the non wage income is also something to consider even though it is not wages. Many more people recieve investment income today than in 1970.

  13. What I remember from the 50s and 60s is parents coming home from their jobs while it was still daylight out, and coming home at predictable hours. Now, anyone who leaves the office every day at 5:00 or 5:30 is doing it because they have to, it’s seen as an exception everyone else has to work around, and the ones who do it are mommy-tracked. We’ve all suffered a big bite taken out of our disposable time.

    Meanwhile, more of my friends and acquaintances are sleep-deprived than not. Chipping an hour or two or three off your nightly allotment, and to a lesser extent getting the hours you do get at irregular times, won’t kill you immediately. It will drop your immune response, and in the long run increase your risk of chronic/systemic disease. It also takes the cream off the top of life. You can still do your work, but everything’s more work and less fun than it should be. Sufficiently severe chronic sleep deprivation is virtually indistinguishable from depression.

    People aren’t just angry for fun. Okay, some of them are addictively angry because it beats being exhausted all the time. Still, that anger’s coming from somewhere. It’s amazingly stupid to let The Conspiracy to Restore the Class System get away with telling everyone that what they’re angry at are the liberals.

  14. Thomas Hawk says:

    Teresa,

    What I remember from the 1970s was a father who worked in construction and got home very late most nights, oftentimes after pouring concrete all day or some other type of rough and physically challenging task. It was definitely dark when he came home and he was more times than not terribly exhausted. As the son of an immigrant my father never had an opportunity to go to college himself. He joined the Air Force out of high school and went to work in construction after completing his service. He worked on Saturdays and taught me not to be ashamed of being poor and frugal but hard working. He did this year in and year out while my mom stayed at home. He put all 7 of us, his children, through college.

    My mom, the oldest of four girls and born in 1948, grew up in a home with 3 sisters and a single mom. Her dad wasn’t around because he was in jail for beating my grandmother’s head in with a rock and leaving her for dead in a canyon in an alcohol induced rage. My grandfather was an alcoholic failed country western singer songwriter who eventually committed suicide. My grandmother in the 50s and 60s worked at least 2 jobs (mostly waitressing) at most times and also got home very late while my mother babysat her younger sisters.

    Although I’m in the office by 6:30 a.m. I’m usually home by 3:30 p.m. at the latest and get to spend wonderful amazing time every single day with my four children and my wife who does not have to work. I live in a great community with a fine public school and have an above average income. I’m not sleep deprived and consider my life pretty fulfilling overall.

    It’s not my life or your life that should be held up as personification of our times. I happen to be enormously fortunate and to a large degree very, very lucky.

    My questions have more to do with, from a strictly analytical perspective, are we better or worse off in median terms. I feel that we are better, despite my own gratuitous personification above. We can all extrapolate supporting evidence on an anecdotal basis from our own lives. What I’m more interested in examining is true data and the ensuing analysis.

    I’d love to see more comment on the general data and analysis of this topic.

  15. el Patron says:

    OK. The wage statistics I used came from here. In particular, look at %(loony)”Total Private Average Weekly Earnings, 1982 Dollars – Seasonally Adjusted – CES0500000051″%

    Note that lower hourly earnings don’t have to mean we have less money. They mean we work harder for the money we have.

  16. clew says:

    Check out _Divergent Paths_; it compares 15 years of employment data for two cohorts of white US men, one starting in 1966, the other in 1979. The younger workers are clearly worse off, except for the top decile. (White men because, first, there’s more data; also, social changes probably swamp economic-condition changes for everyone else’s employment histories.)

    The increase in job instability isn’t imaginary. There are fewer college graduates in the second cohort than in the first, and the return to education is riskier. The organization of firms might have a lot to do with it – for instance, through increased Taylorite deskilling, which lends itself to job instability.

    I “summarized”:http://www.tenhand.com/clew/blog/archives/000289.html what I thought was vital from it, but I recommend it highly, it’s not a hard read for a statistical analysis of employment patterns.

  17. tom says:

    An interesting and relevant discussion is being had on a similar topic over at Crooked Timber
    http://www.crookedtimber.org/archives/002321.html

    Thought i’d join the dots!

  18. Thomas Hawk says:

    I subscribe to a newsletter by Mike Gasior and I’d highly recommend it to anyone interested in how political and social environments affect the economic climate. Mike is an insightful guy and I’ve been reading him for a while. You can read more about his work at his website at http://www.afs-seminars.com/index.asp.

    Recently with all the political rhetoric that we’ve been bombarded with from the Democrats and Republicans both about how bad off we are right now I thought that Mike had some statistical insights below. I don’t mean to sound Polyanish on the problems facing the world today but in a lot of ways we may be better off than we think.

    –In 1900 world life expectancy was 30 years old. Today it is 67 years.

    –In 1970, 35% of the people living in developing countries were starving. By 1996 that number had shrunk to 18% and the United Nations forecasts that the figure will fall to 12% by the year 2010.

    –Also according the United Nations, we have reduced global poverty more in the last 50 years than in the previous 500 years.

    –Life expectancy in the U.S. has increased significantly in all socio-economic categories, with black men making the largest gain from 60 years old in 1970 to 68.2 years old in 2000.

    –Despite all the publicity about the failure of public education in the U.S., Americans have never been better educated. In 1960 only 7.7% of the population held college degrees. Today, 25% of the populations over 25 years old have earned their degree.

    –Partially due to more women entering the workforce, real household incomes rose dramatically between 1980 and 2000. Median income for white families rose 19% during that period, and 39% for black families.

    –Even with all the class warfare rhetoric in this years campaign, the fact is that 12.1% of American families are below the poverty line. In 1960 that number was 22.2%.

    –Figures released by the FBI show the murder rate in the U.S. at 5.5 homicides per 100,000, down from a rate of 10.2 in 1980, almost a 50% decline in less than 25 years.

    –Rates of teen suicide, teen pregnancy and youth violence have all shown steady decline during the past decade.

    Overall, people are living longer, are safer, have more money to spend and having more fun then ever before.

    So turn off the news and the politicians and go enjoy yourself. Life has never been better. Personally I feel that technological advances have had a lot to do with improving our lot in life.

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