Tangible Gains, Intangible Losses

As the comedian Louis C. K. put it, “Everything’s amazing and nobody’s happy.” Despite the obvious march of technological progress, there is a widespread sense that living standards for ordinary Americans have been falling during recent decades – and that prospects for the future look even worse.

In her lead essay, Megan McArdle does an admirable job of confronting this riddle. On the one hand, she catalogues many ways in which the material conditions of life have improved dramatically since her grandmother’s day. But she also notes a number of important ways in which things have gotten worse. As to the bottom line, she’s equivocal: “Like I say, it’s complicated.”

I can’t really find anything in her essay to argue with, so let me simply add a few more facts, figures, and thoughts to fill in the muddled picture a bit more. My own historical focus will be narrower than Megan’s: stories of falling wages and rising inequality usually start from a baseline in the early 1970s, so I will look at trends over just the past four decades or so.

Megan is correct that the performance of “real” or inflation-adjusted incomes isn’t the final word on what’s happening with living standards. But it’s an obvious and sensible place to start. And the real income data tell a pretty unambiguous story of improving material welfare: according to the Pew Charitable Trusts, 84 percent of Americans enjoy higher family incomes than their parents did at the same age. And the percentages are even higher for Americans below the top income quintile.

If that’s a rosier picture than you were expecting, consider further that real income data unavoidably understate the extent of improvement. Real incomes are adjusted for inflation – that is, for changes in the overall price level. But there’s really no way to adjust for the introduction of new goods and services that previously weren’t available at any price. Over sufficiently long periods of time, the changes in what people use their money to buy become so dramatic as to make comparisons of real incomes meaningless. This is obvious if we extend our gaze back far enough. According to conventional calculations, the buying power of a dollar in 1800 was about 14 times greater than today. Since the median annual household income today is about $54,000, it follows that the equivalent in 1800 dollars is around $3,900. Does anybody seriously believe that the 1800 family making $3,900 and the 2014 family making $54,000 enjoyed equivalent standards of living?

This problem is less severe for comparisons across four decades than for those across two centuries, but it’s still daunting. So to get an accurate picture of material living standards over time, your best bet is to use a dashboard of different physical indicators. And it’s really difficult to find measures of physical wellbeing that haven’t improved significantly since the 1970s. Life expectancy is up. And people aren’t just living longer, they’re healthier longer too. People spend more years in school on average. In many cases, the healthcare available to everybody today is superior to what anyone could have purchased back then (the dysfunctions of how healthcare is paid for are another matter but not relevant here). Homes are bigger and filled with more appliances; closets are bigger and filled with more clothes. People travel abroad more. Our skies, lakes, and rivers are cleaner. And, of course, we now have microwave ovens, ibuprofen, ATMs, the Internet, GPS, flat screen TVs, and suitcases with wheels on them (why did that one take so long?). Violent crime did go way up, but now it’s back to where it was. Traffic congestion has gotten progressively worse – that’s pretty much it for the bad news on strictly material welfare.

But enough with the happy talk – now for the other side of the story. First, although family incomes may be up for most, that is because of good news for women. Since the 1970s women’s earnings, educational attainment, and labor force participation have all risen smartly (although the last of these is down from its 2000 peak). For men, however, it is a different story. Based on calculations supplied by the Manhattan Institute’s Scott Winship, median hourly real wages for men with less than a high school education were actually 11 percent lower in 2012 than they were back in 1973, while those for high school grads were up by a measly 4 percent over 40 years. Scott is well known for arguing that most estimates of wage growth are too pessimistic because they use improper adjustments for inflation, so his numbers represent the most optimistic take on what’s been happening. Admittedly, these figures don’t include health insurance or other benefits, but it is unlikely that high school dropouts have jobs with many benefits.

The deterioration or stagnation in many men’s earning power is part of a larger economic transformation: a secular decline in the relative demand for less skilled labor as imports, offshoring, and especially automation substitute for American muscle. Over the past couple of decades, this phenomenon has been exacerbated by a growing polarization of the occupational structure. As MIT economist David Autor has done so much to document, growth in middle-skill jobs has fallen behind that for high- and low-skill jobs; consequently, middle-skill positions are accounting for a shrinking percentage of total jobs. Since middle-skill jobs represent the top of the career ladder for many non-college-educated workers, this means that opportunities for advancement are narrowing. And since workers forced out of those jobs aren’t qualified to compete for high-skill positions, they are forced to seek lower-skill jobs, putting further downward pressure on those wages.

As a result of these developments, there has been a growing economic cleavage between the highly skilled and everybody else. The wage premium for earning a college degree has doubled since 1980, and “90-50 inequality” – the gap between incomes at the 90thpercentile and those at the 50th percentile – has been growing steadily since the ’70s.

Consequently, even though most Americans have enjoyed absolute income gains over the past generation, they have simultaneously experienced relative losses. They may be better off than their parents, but they are falling farther and farther behind their more skilled contemporaries.

This is a very real sense in which most Americans are worse off than before, and it’s no good to pretend otherwise. For most people, paid employment is their primary means of participating in the larger society around them; working and earning their own way as productive members of their community provide the bedrock of their self-respect. When the relative value of your work is in long-term decline, and when the opportunities for doing anything better are slipping away with every passing year, your access to material goods may be improving, but your social status is falling.

Yes, the concept of “living standards” may be centered on material welfare, but it commonly extends beyond that to include some broader conception of overall wellbeing. And when we talk about overall wellbeing, we know that, for animals as highly social as human beings, the quality of one’s relationships with others will generally matter much more than the quantity of stuff one has amassed. Accordingly, the declining status of less skilled work – and the diminution in social standing from not being brainy in a knowledge economy– counts as a setback in living standards for roughly two-thirds of American society.

Connected to this relative economic decline are more serious breakdowns. They amount to an alarming deterioration in attachments to both work and family throughout the ranks of the non-college-educated. In contemporary society, paid employment along with marriage and childrearing are far and away the most important social relationships we have. They ground our personal identities and imbue our lives with meaning and purpose. Yet these vital interpersonal connections are now fraying badly.

Among “prime-age” males aged 25-54, the labor force participation rate has declined from 96 percent in 1969 to 88 percent today. This drop-off has been concentrated among the less skilled, as an absence of attractive job opportunities and the resulting demoralization are driving “working-class” men out of the workforce. Between 1969 and 1999, when overall U.S. labor force participation was reaching its all-time peak, the participation rate for prime-age white males with college degrees dipped slightly from 98 to 96 percent, while the rate for their black counterparts slipped from 94 to 92 percent. For prime-age male high school dropouts, by contrast, the participation rate fell from 95 to 83 percent for whites and from 91 percent to 61 percent for blacks. So most of the attrition wasn’t people graduating from the workforce into early retirement, but rather people dropping out of the job market because of slim pickings. And note that this decline was well underway before the labor market troubles of the 21st century.

Meanwhile, the breakdown of the two-parent family has spread from the underclass throughout the working class. Back in 1969, only about 10 percent of children were born to single moms; now the figure stands above 40 percent. The growing economic cleavage along educational lines is mirrored by a widening disparity in family stability. In 2011, 87 percent of kids who had at least one parent with a college degree were living with both their parents. For the children of high school dropouts and high school grads, the corresponding figures were 53 and 47 percent, respectively.

All of these negative trends reinforce each other. The declining status and work attachment of less skilled males exacerbate the trend toward single-parent families by reducing the supply of marriageable men. In turn, being raised by a single mom has especially negative consequences for boys, which means another generation of low-skill men.

How then to summarize what has been happening with American living standards over the past few decades? On the one hand, continuing broad-based improvements in material welfare; on the other hand, economic marginalization and increasingly widespread social breakdown among the less educated majority. Like Megan said, it’s complicated.

Also from This Issue

Lead Essay

  • It’s Complicated. But Hopeful. by Megan McArdle

    Megan McArdle makes the complicated case for optimism: Present-day Americans generally enjoy lives that at a comparable age their grandparents could only dream about. Technology has turned many onerous chores into trivial ones. It entertains us and supplies us with a wide variety of consumer goods. We spend more on health care, but it’s better care, and it’s also an accomplishment that we can spend so much on it at all. Yet many problems remain: Life is good for college graduates, but for others it can be increasingly hard. Mass incarceration raises questions about how good prisoners’ lives can possibly be. And family and community breakdown seems by many measures all too great a problem. As a result, McArdle’s optimism is decidedly guarded.

Response Essays

  • Let’s Compare Our Standards in the Present by Jared Bernstein

    Jared Bernstein argues that the less privileged take no comfort from improving living standards. The privileged of today are the relevant comparison cohort, and until the less privileged are comparable in wealth, liberty, and dignity, they have every right to complain. People should - and indeed do - think about inequality in relative terms, and in present-day ones. They are rightly uninterested in historical comparisons. And they are correct to complain when the wealthy get still further ahead than they have. Absolute progress over time is real, but it’s also irrelevant in any conversation that values equality.

  • The Pain of Progress by Richard V. Reeves

    Richard V. Reeves finds it “offensive” to read that poverty has been eradicated in advanced countries. Poverty is always relative, he writes; it otherwise has no meaning at all. And relative poverty we still certainly have. The relative poverty of Americans – even those who are affluent by historical standards – has had real and indeed devastating effects on their lives. The gap continues to grow between rich and poor, and although our economic development is not to be regretted, its ill effects are certainly to be mitigated through policies that directly benefit those who are paying its greatest price.

The Conversation