Over the past 20-30 years, what changes have occurred that now make it necessary for many households to have two incomes to stay afloat?
In: Economics
You ‘need’ two incomes because more people have two incomes.
There are two main angles to this.
One is a version of Ricardo’s Law of Rent.
https://en.m.wikipedia.org/wiki/Law_of_rent
A (very crude) description of the implications of this economic principle is that a large proportion of the benefit of higher household incomes is ultimately transferred to owners of economic rents; a resource with a fixed or semi-fixed supply.
The classic example is housing (and land more generally); if everyone is making more money, but still competing for the same housing, then the owners of the housing can charge more money.
It is not *literally* referring to housing rent – there are many types of economic rent although real estate is one of the most important out there.
As a result, a household without two incomes is now much further down the income distribution scale than it used to be, and so can afford lower-quality housing; you can’t easily go and buy low quality agricultural land and build a new place.
The second point is that our expectations of ‘staying afloat’ – and poverty generally – are far inflated from what they used to be, because people generally perceive it as a relative social issue as much as a question of absolute wealth.
Despite the issue around higher rents being extracted from higher incomes, we *are* still much richer on a net basis than we were 20, 30 or 50+ years ago. But now to stay afloat we expect much more.
Some of it is about consumption expectations – you didn’t use to need an internet connection or payTV at one time. Now you sort of do. Same with smartphones. You need more electricity to run all your devices. More people expect to go to college these days. You get the idea.
Some of it though is indirect through things like regulation – we could make old-style autos much cheaper now than we could back then, but they would be illegal nowadays as safety standards are so much higher. We could produce electricity so much more cheaply, but we decided to make it more expensive so we could use it to subsidise renewable producing etc. This is a bit like increased consumption expectations but other entities are making the decision for you to demand higher standards at the expense of cost. Because you can all afford it now with your dual incomes.
So that’s basically it. If you have a single income now you are much lower down the income distribution scale than you used to be, and many things you expect to buy or have to buy have an actually become more expensive as a result of households generally getting wealthier.
Latest Answers