Tuesday, March 22, 2011

Income for Fully Employed Males Down Compared to 1970

It's true that the median family income has been rising pretty consistently, though it's rising at a slower rate since the 70's. But how much of that is merely due to the fact that women are entering the workforce?

Elizabeth Warren has the data and it's fitting the pattern of the post Bretton Woods stagnation. She offered a lecture called "The Coming Collapse of the Middle Class" and she compiles some extremely informative data. I wish I could find the slides themselves and can't seem to, but I'll provide a time stamped link to the portion in the Youtube clip that shows one of the slides in the video.

And here it is. Median income for married couples and also for fully employed males from 1970 to 2005. Family income is up. But the median fully employed male is actually earning $800 less than his father did a generation ago. That despite the staggering gains in productivity that have occurred since that time.

Here's another interesting fact. What are Americans doing with the extra money that they have with the two income earners? Buying fancy clothes? Buying expensive cars and homes? Buying all kinds of cool electronics? The savings rate is down dramatically. Revolving debt (basically credit card debt) is up. Is it because Americans are irresponsible?

The data is surprising. Americans are spending 32% less on clothes. Food, including eating out, bottled water, etc is down 18%. Appliances? Down 52%. Per car costs? Down 24%. Electronics spending is up of course. A mere $300/yr it went up, which is not a lot. On net typical consumption went down. A few things went up. Dog food. Alcohol. But overall in terms of ordinary consumption costs are dropping.

So what's going on? Where is spending rising? Take an ordinary 3 bedroom 1 bath house. 76% more expensive today. Mortgage rates are down, but housing costs were up. The median house grew. From 5.8 rooms to 6.1 rooms. And the median family did pick up either a second bathroom or a third bedroom, but not both. That's counter intuitive because we've all seen the new houses being built. They are huge. But what that tells you is the new housing market had shifted in service to more wealthy people, not entry level earners.

What about health insurance? Warren looked specifically at healthy families with an employer provided health insurance plan. So this is skewed towards the more fortunate people but it allows an apples to apples comparison. The family pays 74% more.

Car costs are up 52%. Per car costs are down, but the median family has gone from being 1 income to 2 income and thus has gone from being a 1 car family to a 2 car family.

Child care is a new expense picked up by the two income family that wasn't there before, so that's a large addition.

Finally the tax rate has gone up about 25%. We do have progressive taxation, which means the first dollar of the second earner is taxed after the last dollar of the first earner, so that means the tax rate for the family unit has increased.

With regards to these 5 major costs, notice that they are kind of fixed. I mean, you don't have to buy clothes every month, or appliances. You need food but it's possible to eat cheaper if you like. But there's no backing off on a mortgage, health care, day care, taxes, and car payments. Month in and month out it's kind of fixed.

Family income is up. But when this two income family has actually paid down their fixed expenses for the month we reach a startling realization. They actually have less money available than the single income family had in 1970. Why did savings drop from about 11% to about zero? Why is credit card debt up? People have less available in terms of flexible expenditures. That's the deregulated, union busting, tax cutting miracle that we've experienced over the last 35 years.


HispanicPundit said...

Another reason why you should read Megan McArdle. She has dealt with alot of Elizabeth Warrens claims. See here, here, here, here and here.

If I remember correctly, McArdle got alot of flack for making some claims in haste, but the gist of what she says is right. It's quite a take down. And another reminder to take economic comments by non-economists with caution.

Jon said...

Here's a pattern I see for you, HP, that I'd ask you to consider. Most of my posts are about issues, not personalities. I've done some of that, but I try to focus on truths. This post is not really about Elizabeth Warren, who I know little about. There are some interesting facts on the table. What do you make of them? Are they wrong?

Because 5 links discussing Elizabeth Warren doesn't necessarily address the issue, which I'm interested in understanding. Do any of them actually have anything to do with the subject?

I started reading your first link. Supposedly Warren says the median house had 5 rooms and now it has 6. Wow, 20%. That's a lot. That's not what Warren said in the talk I linked to. She said 5.8 to 6.1. So at that point I just stopped with this long post from Meghan and I need you to direct me specifically to something that is relevant to the topic.

The more I read from Meghan the less impressed I am. You call this a reminder to read non-economists with caution. I'd call it something else.

HispanicPundit said...

She doesn't address Elizabeth Warren the person (well she does, but thats limited), she addresses Elizabeth Warren's claims. I said so in my response.

But in general, when you see a pattern of deception or errors and dont have all the stats in front of you, you start reading less of the individual. Taking the person less seriously. Do you continue to read David Horiwitz, for example? Well Elizabeth Warren seems to me to be that type of person.

The way you dismiss Megan McArdle after only reading a few sentences, thats how I dismiss Elizabeth Warren. I've read enough about her to know she doesn't fully understand the data.

Jon said...

I'd suggest you read Elizabeth Warren rather than what Meghan says ABOUT her. Meghan's very first criticism of Warren misrepresented what Warren said. Maybe Meghan is feeding you misrepresentations.

I know Meghan purports to address claims by Warren. My question is why do you post links that address other irrelevant claims by Warren? I'm not interested in defending Warren. This is not about Warren. This is about specific claims I put forward here. If one of your links from Meghan addresses THESE claims point me to it.

HispanicPundit said...

I've been wanting to respond to this for some time now, just haven't had the time. Let me take a stab at it now:

Regarding homes, first home ownership rates are up, not down. See here. Second, as Megan McArdle argued in the first link above, these homes are also dramatically bigger (especially taking into account changing household structures).

Regarding increased middle class debt, see McArdle here. I'd give a short version, but it wouldn't do it justice.

Lastly, here is a direct short review of her points, again by McArdle. Which can be summarized as: Elizabeth Warren is not an economist, and as such, will likely make basic mistakes that would lead her to false conclusions (for specific examples of her using information badly, see this). Frankly, this is why I don't take stuff like this too seriously from non-economists. Give me an economist, ANY economist, even a liberal one, and I'll take what they say more seriously.

Now I know Jon doesn't like to read those he disagrees with, but I wish those who read this thread and are more interested in the topic to go through McArdle's posts and check out this post as well, along with its links.

Jon said...

Before I go through all your links, which appear to be a repeat of your links from above, answer this question. Did you listen to the Warren talk?

Jon said...

For that matter did you read what I wrote? You want to make this post about Elizabeth Warren. It's not about her. I said this in my first response to you. My post here is about income for fully employed males. Not a single word you wrote addressed my point. I am not here to defend Warren's overall thesis.

It's not that I don't like to read those I disagree with. It's that I'm not necessarily going to read posts rebutting arguments I didn't make or that are not related to the subject I'm addressing.

Jon said...

And who said home ownership rates are down? Why are you showing me that they are up? Did I say they were down or did Warren?

Jon said...

OK, I read all your links. The stuff from Meghan could lead to some interesting rabbit trails, but I'm not going to address it because I see it as off topic.

Volokh makes a fair point about the way she's presenting the increase in tax costs. I can accept that criticism. The 25% figure Warren uses is to reflect the increased tax burden is misleading.

The key point remains though. Despite the productivity gains fully employed males are making less and the family does have less disposable income since 1970 when you subtract the fixed expenses.

HispanicPundit said...

I had posted a response here and now its gone???

You really got to fix this whole spam filter. An obvious alternative is to switch to wordpress. Its also free and you can post a link to it from this blog. Its spam protection is FAR SUPERIOR to blogspot.