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
It’s not over the last 20-30 years. Number of incomes is an arbitrary metric. Call it wages or real wages or whatever.
The reason for this is because of economic competition.
Sure, I could build a house that you could buy from me using 1 income. But if I build a bigger one that 2 incomes can afford I make more money for myself. So why would I do the first instead of the second.
This is broadly applicable across history.
Wages haven’t kept pace with inflation. Costs rise, pay doesn’t. If they had, Federal Minimum Wage would be ~$25/hr nowadays.
What happens when supply of something increases when demand stays relatively flat?
What do you think would happen if the outside of home labor supply effectively doubles, but the people who are now working still effectively have the same demands they had prior to joining the outside labor force?
The basic gist is that more people want houses than there are houses available, so people pay higher prices to get a house.
The housing supply is short because there are more people. We have to spend a larger portion of our income on other things, cars, phones, TVs, and things that we think are common now were luxuries 20 – 30 years ago. Our houses are also a lot bigger, with nicer amenities in them. Cities have enforced zoning ordinances that don’t allow for mixed-use, high-density residential, etc.
All of these factors combine to just not enough housing to go around.
Aside from what others have said. People “need” more things. Have to have multiple tv’s, cell phone, computer, expensive cup of coffee ect. So they buy more stuff and when that breaks, they buy more of it again. Money is spent much differently today than it was 30 years ago.
The simple, actual, ELI5 answer is:
The cost of living (goods, services, housing, ect) has risen faster than the rate of compensation (your wages). That’s it, that’s your answer.
Now WHY this happened is a topic of furious debate and discussion. Many left leaning people, myself included, will point to economic policy changes that enormously favored the wealthy compared to the average person; particularly regulations that were changed under Reagan. Others will point towards the introduction of productivity tools devaluing labor. Some might point out that, once it became viable for two a household to HAVE two incomes (women entering the workforce), it became just as viable for companies to charge more for their goods, maintaining status quo. Some will point towards monetary policy, looking at everything from US spending, to the detachment from the gold standard under nixon. There are tons of factors, but the end result is the same: we don’t make nearly as much more money as we have to spend.
I will never in a million years understand why young people think 20, 30, or even 40 years ago it was typical for a family to get by on a single income household.
We were called “latchkey kids” in the 80’s because both parents left for work before we even woke up, and they didn’t come home until after we had already made dinner. We were left to raise ourselves because it required 90+ hours a week between two parents just to keep a roof over our heads.
Automation and robots and AI would be great, if the workers it replaced still received compensation for the job rather than just being let go. Progress helps the owners not the workers, other than safety.
We are all familiar with inflation. Increase the amount of money available and the price of everything goes up. Specifically businesses raise their prices and can get away with it.
The converse is also true. Increase the supply of something and the price goes down. Once families could have two incomes the supply of labor is doubled. So the price of labor went down. Businesses have been able to lower wage rates in real terms because of the extra supply of labor.
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.
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