Dual Incomes: Masking a Middle Class Crisis?

Here’s your food for thought for the week. Are dual income households worth it? Or are they actually hiding a bigger problem for the middle class? Professor Elizabeth Warren writes in a recent issue of Harvard Magazine that today’s middle class dual income households are actually less financially secure than single income households of a generation ago.

Scholars, policymakers, and critics of all stripes have debated the social implications of these changes [switching to a dual-income model], but few have looked at their economic impact. Today the median income for a fully employed male is $41,670 per year (all numbers are inflation-adjusted to 2004 dollars)—nearly $800 less than his counterpart of a generation ago. The only real increase in wages for a family has come from the second paycheck earned by a working mother. With both adults in the workforce full-time, the family’s combined income is $73,770—a whopping 75 percent higher than the median household income in the early 1970s.

Men’s incomes are stagnant. But since household incomes haven risen 75 percent because of women entering the workforce, families are better off, right? Not necessarily. Fixed costs have risen correspondingly with the increase in household incomes, while discretionary income has actually dropped slightly. This means two-income families aren’t exactly living it up. Indeed, counterintiutively, single income families of the 1970s lived more luxurious lives than today’s two income families.

The bottom line: today’s median-earning, median-spending middle-class family sends two people into the workforce, but at the end of the day they have about $1,500 less for discretionary spending than their one-income counterparts of a generation ago.

Today’s families, far from coming down with affluenza, Warren writes, are actually living more frugally than their 1970s counterparts. The average family of four today spends 33 percent less on clothing than a similar family did in the early 1970s, 23 percent less on food (at-home and restaurant eating combined), and 51 percent less on major appliances than their predecessors (all of these numbers relative to inflation).

Warren writes, and blogger Chris Atwood makes the point even stronger, that all of that extra income has been eaten up by “basics”– housing costs, health and child care (for obvious reasons), transportation, and higher taxes (from 24 percent to 30 percent of income). I’m not an economist, so I’m not going to quibble with Warren’s numbers. Assuming she’s right, what can be done about the increasingly precarious position of the middle class? Warren wants to repeal the recent bankruptcy reform and other financial sector reforms passed since the 1980s which allow lenders to engage in practices “too shady even for a back-alley loan shark.” She also supports traditionally generous pension and healthcare benefits programs, like the kind that once defined the steel, airline, and automobile industry. These measures would take some of the “risk” out of middle class life, which I am certain the conservative audience here would take issue with. Atwood, on the other hand, argues that many of Warren’s “basics” are not really that because they are a direct cost of taking on a second income — namely child care and a second car. He also argues that most of the middle class crunch comes from higher taxes. So his answers are to cut taxes and find ways for people to live on a single income.

What do you think?

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0 responses to “Dual Incomes: Masking a Middle Class Crisis?

  1. Anecdotally: my husband and I are both computer professionals who made nigh-identical salaries sixish years ago… I opted to stay home, thereby cutting our household income in half.

    We noticed no negative lifestyle impact.

    I mean, things changed: I cooked, instead of us eating out, which some people might consider a decline… except that we were so horribly burned out on every restaurant that eating out was a necessary evil. Things like that. We’ve never hurt for money, we just gave away our van and still managed to drop 50% down on a (used, granted) car to replace it, and the only even halfway significant financial “crisis” we’ve had was last year, when (wait for it…) I went back to work as a contract programmer and had to pay self-employment tax (which I miscalculated).

    Now, granted *one* of our salaries is probably half again the median, so that makes a difference. But it was not *anything* like what we expected… we were ready to eat ramen, and it didn’t happen.

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