As dual-income households have become more the norm, it's really the household income, rather than an individual's income, that's a better measure of (material) richness.
For instance, you might have a family with a sole breadwinner who has a low six-figure salary, but that has to cover all the family's expenses. Meanwhile, even if his neighbors, a dual-income household, both earn less than him, their household income could be considerably more.
By the way, the rising percentage of dual-income households has been suggested as an exacerbating factor in the growing income inequality in the U.S.
If you figure that people tend to marry others of the same educational level (more so now than in generations past), and if educational level is roughly correlated with income, then you can see how the gulf widens.
Whereas 50 years ago, when single-income households were the norm, a lower-educated fellow might bring in SALARY and a higher-educated fellow might bring in SALARY * 2. But now, with dual-income households, a lower-educated couple might bring in (SALARY * 2) and a higher-educated couple might bring in (SALARY * 2) * 2.
So, 50 years ago, there was one SALARY worth of difference between the lower-educated household and the higher-educated household. Nowadays, there is (SALARY * 2) worth of difference.
Surely requiring two incomes in a household is extraordinarily problematic?
Before, one partner could sustain the household and the other could stay at home and raise kids.
Now, if both partners are expected to earn and have careers, who looks after the home life? Who looks after the kids? Surely this is really really damaging?
And doesn't that mean that in real terms we're earning half as much?
It is problematic for dual-income households with kids.
In these situations, kids are raised by a combination of:
1) Extended family (typically retired grandparents)
2) Daycare / child-care / "school system"
3) Private child-care (e.g. nannies or babysitters)
#1 is cheapest, but ties the family down to where the grandparents are. Both parent jobs need to be located relatively close by.
#2 typically take a huge chunk out of the 2nd income (which is almost always unfairly compared against the mother's income), at least until a family can survive/pay for such child-care until public schooling becomes an option.
#3 is only really an option for those that earn enough to support a full or part-time babysitter.
Sometimes you'll see a combination of #2 and #3, but that again is only really an option for those with enough cash-flow. Some preschool programs are even more expensive than a decent nanny, although ones loses out on the socialization aspects that come built-in with a daycare program.
Home life (beyond kids) for dual-income households is a shared responsibility. I don't think much changes there whether you're a single income or dual-income household. If you're talking about chores like groceries, cooking dinner and cleaning up, that's what weekends and evenings are for.
In real terms, we may be earning half as much (or even less depending on the combined income), but the marginal incremental value of the career experience and/or additional dollars is usually enough that going dual-income wins out.
EDIT: @humanrebar mentioned the "safety premium". Households that have experienced layoffs in the past (friends/family/themselves) probably take into account that although both adults may be working today, that doesn't mean both adults will be guaranteed jobs X months/years in advance.
Yes, it is a bit of a burden for the grandparents. I hear that this is sometimes alleviated by using grandparents on both sides of the family, health permitting (/anecdata).
So what exactly was the point of the colossal developments in human productivity in the last ten decades?
So we can continue to function as desperately as our ancestors whilst a few people have more money and power than we can possibly imagine? Fucking great.
And doesn't that mean that in real terms we're earning half as much?
Yes. It does. Average earnings per person started to drop once women entered the workforce, presumably since at the beginning it was a big bonanza - "hey look at this! twice as much household income!" Over time the dual income averaged out to what it is today, but now both people have to work.
Two incomes in a home is not required, it is just that our lifestyles have evolved to "require" that. Home prices over last 40 years adjusted for inflation have not changed very much (besides in the bubble in mid 2000's).
Previously on that one income a reasonable 40 years ago family could have a home, a TV, a car, and take inexpensive road trip vacations. Now the typical family has multiple cars, homes much larger than in the past, a vacation could be flying to some destination, $100 cable bill, $150 phone bill...
So if one wanted to live like in the past it is certainly attainable on a single reasonable income. That may mean "only" having a 1700 sf house with one bathroom and one car.
Even since I was a child things have changed a lot. The typical new home today would be something I would have considered luxury as a child. I think that things changed a lot in the dot-com -> Real estate bubble era that gave Americans a taste for luxury that is now the normal.
Home prices over last 40 years adjusted for inflation have not changed very much (besides in the bubble in mid 2000's).
This might be true as a national average, but it is definitely not true in areas where there has been consistent competition for housing. It's that competition which will push housing prices up to levels that require two middle-class incomes.
This includes most major cities. Even excluding bubbles, desirable urban real estate in the US has skyrocketed much faster than inflation. There are a lot of factors in that, but one of them is that the market has now priced in the fact that most homeowners in these areas are now dual income.
So if one wanted to live like in the past it is certainly attainable on a single reasonable income.
I'm not sure that's true. Take Houston, for example. Some of the most expensive neighborhoods were originally suburbs in the 1950s filled with workers who commuted downtown. Now those neighborhoods are considered urban and there is an entirely new ring of suburbs beyond them (in fact two such rings). The homes in these now-urban neighborhoods are now all $1M+.
A family with a reasonable income of $100k will be completely priced out of all those homes. They'll be forced to either live much further out (meaning very long commutes) or to live in an apartment/condo or, maybe, a townhouse. If they had lived in the 50s, they'd have been living in a neighborhood that is now reserved for surgeons, corporate attorneys, and even CEOs.
So if one wanted to live like in the past it is certainly attainable on a single reasonable income... That may mean "only" having a 1700 sf house with one bathroom and one car.
I agree with the attitude here but cultural norms have shifted so much that there isn't nearly enough supply of those sorts of homes. The reality is that people typically "downsize" by moving far outside of town and commuting long distances, which isn't really a solution to the problem.
You also produce more, which means you can export more, thus giving the economy a boost overall which raises standards of living because you can get more foreign goods for your $.
As dual-income households have become more the norm, it's really the household income, rather than an individual's income, that's a better measure of richness.
That depends on how the income is spent. If people spend their extra income on leisure activities, luxury goods, etc then it'll absolutely mean that a high household income will be a good measure of richness. That's obvious.
However, if dual income households decide to spend their income on investing in a better house, what will happen is that it'll push house prices up - a finite supply of housing stock means there'll be competition for the best homes, so people will have to pay more for them. That demand side pressure will filter down the housing ladder and pull all the prices up. After thirty or forty years this will have had the effect on house prices that single income families just can't afford to buy. Further, it'll mean that dual income families have to retain two incomes, so parents wanting to stay at home when they have children simply won't be able to afford to.
This has already happened in the UK. Lots of pundits are predicting a crash because the first-time buyers can't afford to buy, meaning no one is buying the lower price houses, and that's going to pull the whole thing down.
Mind you, the pundits have been saying as much for about twenty years.
This has already happened in almost every major city in the United States. My anecdotal observation is that townhomes in major cities are affordable to single folks with one (low six figure) income and single family homes require two such incomes. And that actually does make a bit of sense, as a married couple has a higher probability of making good use of a SFH than a single person does.
I don't predict a crash (at least not based on this phenomenon alone) precisely due to the abundance of townhomes that are being built in the US. In Houston, for instance, even though the townhomes are sort of hated since they're replacing old, historic bungalows in many cases, they are the one thing keeping the city somewhat affordable. Cities which have extreme zoning laws preventing this sort of development might be more susceptible to a crash.
There is "rent seeking" (a microeconomics term for a market inefficiency using politics for wealth creation instead of true wealth creation) by having zoning laws which keep land use density artificially reduced as well as over-using "historic landmark" laws. The zoning restrictions on land use and the overuse of historic landmark laws effectively make very wealthy landlords and other landowners wealthier still at the cost to others.
See writings of Harvard economist Edward Glaeser for more details.
This is something that can be fixed by reducing the market inefficiency of "rent seeking" through state law which overrides the desires of wealthy landowners at the city level.
Zoning laws can pose a lot of restrictions on where those houses can be built, so it depends heavily on the city. Basic physical obstructions and topology also play a role. Adding more homes onto far out suburbs isn't going to do much to massage the problem of unaffordable housing near downtown office districts if it means that homeowners have to commute an untenable distance.
Which makes substantial profits for the home builders but very little in the way of more affordable housing.
The price of a barrel of oil is determined by supply and demand. As the price goes up, more production is brought online which is now economically feasible. So at $100/barrel you've got the Canadian tar sands projects which make oil for something like $80 a barrel worth of cost so the company can make $20 a barrel.
But there are still tons of wells out in west Texas that are producing oil for $20 a barrel in cost. The people that own those wells are making $80 a barrel in profits.
If housing prices are high home builders might be able to build less expensive houses but they have no incentive to. They can sell the houses they build at market rather than below market prices. It might increase the supply but that doesn't necessarily translate into reduced prices in any kind of a reasonable timeframe.
The increased housing prices are caused by "rent seeking" by wealthy landlords (think people who own hundreds of rental units for example) that want to increase the value of their property. They do this through zoning ordinances that artificially restrict zoning density and also through overuse of "historic preservation" laws. See Harvard economist Edward Glaeser's writings for more details. He very clearly demonstrates the increasing cost of land and as distinct from the cost of construction.
It is important to understand this reason, "rent seeking" in microeconomics makes for market inefficiencies. It is a means for people to enrich themselves through politics by making people pay more for rent or for buying a house instead of through actual wealth creation. The solution to the ever increasing housing prices is to reverse the "rent seeking" by fixing zoning laws so that there are not unfair zoning density restrictions and restricting the overuse of "historic landmark" laws.
In the UK when house prices go up people tend to build more houses at the top end of the market where there's the most profit. No one builds cheap houses that people on a single income could afford. I don't know if the US is similar.
I think there are a couple of factors you're overlooking.
Consider the case of a dental hygienist married to a nurse. In SF, they both earn about 110k a year. So $220k is a high salary, comparable to a physician in a modestly paying speciality.
Here's the thing... I think payroll deductions apply to the entire 110K of each dh and nurse's salary, but only the first $110k of the physicians salary. However, the second salary in the two-income family will be taxed at a high rate, on top of the first salary. Furthermore, physician's husband, who doesn't work, is available for full time child care. The nurse and dental hygienist have to arrange full time day care for their two young kids, which runs about $20-25,000k a year per kid in SF. And because they are a very high income family, over the "ultra-rich" 200k threshold, they don't get a tax break.
Even close to 100k, that second salary may have a marginal value close to zero once kids enter the picture.
That doesn't mean you shouldn't work just because the marginal value is low in the moment - eventually you get to come back up for air, and people who continued to work are often much better positioned to advance again. So there are benefits.
In progressive tax situations that is called the 'marriage penalty' (second salary is all taxed at the higher marginal rate) which is mitigated somewhat by changing the tax thresholds for married people filing jointly. You can file separately of course, and it seems a number of people are living together and filing as individuals, it gets complicated as you get kids because they become dependents (and a tax credit) on one of the people's return.
There is a reason all this stuff keeps a legion of tax attorneys and CPAs employed.
"the growing number of dual-income households has been suggested as an exacerbating factor in the growing income inequality in the U.S."
That's a red herring.
When people talk about inequality as a serious economic problem, they're not talking about any discrepancy between households living off a salary or two. They're not even talking about the discrepancy between the ninety-nine and the one percent -- they're talking about the point-one percent and everyone else.
I don't think it's as much of a red herring as you suggest. More and more, a dual income is required for basic sustenance. That has a significant impact in many intangible ways: stress, family dynamics, freedom to pursue entrepreneurial efforts, etc.
It was suggested that dual incomes were a cause of increased inequality, not a symptom. And that's wrong.
The inequality that's an economic problem is not between those earning more than 100k and those earning less [1]. The problematic inequality is the difference between those earning more than 1M and those earning less. [2]
I absolutely agree that dual incomes are an increasing-necessity, but they're a symptom of inequality. They're more-required because the "below 1M" earners have not been seeing their wages rise with their increased productivity. And those "lost wages" are going to the "above 1M" crowd -- not the above 100k crowd.
[1] Two incomes are not making anyone cross that line, save a hypothetical family with two executives at small-to-mid-size firms. And the problem is primarily the rates-of-change of wages between those earning more than 1M and those earning less. That there's a gulf is not, by itself, much of a problem. That it's getting wider, is concerning. That tangible objective increases in worker output and efficiency are not translating into increased worker rewards is the ticking time bomb.
Comments
As dual-income households have become more the norm, it's really the household income, rather than an individual's income, that's a better measure of (material) richness.
For instance, you might have a family with a sole breadwinner who has a low six-figure salary, but that has to cover all the family's expenses. Meanwhile, even if his neighbors, a dual-income household, both earn less than him, their household income could be considerably more.
By the way, the rising percentage of dual-income households has been suggested as an exacerbating factor in the growing income inequality in the U.S.
If you figure that people tend to marry others of the same educational level (more so now than in generations past), and if educational level is roughly correlated with income, then you can see how the gulf widens.
Whereas 50 years ago, when single-income households were the norm, a lower-educated fellow might bring in SALARY and a higher-educated fellow might bring in SALARY * 2. But now, with dual-income households, a lower-educated couple might bring in (SALARY * 2) and a higher-educated couple might bring in (SALARY * 2) * 2.
So, 50 years ago, there was one SALARY worth of difference between the lower-educated household and the higher-educated household. Nowadays, there is (SALARY * 2) worth of difference.
Surely requiring two incomes in a household is extraordinarily problematic?
Before, one partner could sustain the household and the other could stay at home and raise kids.
Now, if both partners are expected to earn and have careers, who looks after the home life? Who looks after the kids? Surely this is really really damaging?
And doesn't that mean that in real terms we're earning half as much?
It is problematic for dual-income households with kids.
In these situations, kids are raised by a combination of:
1) Extended family (typically retired grandparents) 2) Daycare / child-care / "school system" 3) Private child-care (e.g. nannies or babysitters)
#1 is cheapest, but ties the family down to where the grandparents are. Both parent jobs need to be located relatively close by.
#2 typically take a huge chunk out of the 2nd income (which is almost always unfairly compared against the mother's income), at least until a family can survive/pay for such child-care until public schooling becomes an option.
#3 is only really an option for those that earn enough to support a full or part-time babysitter.
Sometimes you'll see a combination of #2 and #3, but that again is only really an option for those with enough cash-flow. Some preschool programs are even more expensive than a decent nanny, although ones loses out on the socialization aspects that come built-in with a daycare program.
Home life (beyond kids) for dual-income households is a shared responsibility. I don't think much changes there whether you're a single income or dual-income household. If you're talking about chores like groceries, cooking dinner and cleaning up, that's what weekends and evenings are for.
In real terms, we may be earning half as much (or even less depending on the combined income), but the marginal incremental value of the career experience and/or additional dollars is usually enough that going dual-income wins out.
EDIT: @humanrebar mentioned the "safety premium". Households that have experienced layoffs in the past (friends/family/themselves) probably take into account that although both adults may be working today, that doesn't mean both adults will be guaranteed jobs X months/years in advance.
Also, it's kind of shitty to your parents. Is watching your kid from 9-5 on weekdays really what they wanted to retire for?
Yes, it is a bit of a burden for the grandparents. I hear that this is sometimes alleviated by using grandparents on both sides of the family, health permitting (/anecdata).
Um, yes? It is bizarre how unaware some folks are of how human civilization has been organized for centuries.
So what exactly was the point of the colossal developments in human productivity in the last ten decades?
So we can continue to function as desperately as our ancestors whilst a few people have more money and power than we can possibly imagine? Fucking great.
So that's how you want to spend your retirement years, as a babysitter?
Yes. It does. Average earnings per person started to drop once women entered the workforce, presumably since at the beginning it was a big bonanza - "hey look at this! twice as much household income!" Over time the dual income averaged out to what it is today, but now both people have to work.
Two incomes in a home is not required, it is just that our lifestyles have evolved to "require" that. Home prices over last 40 years adjusted for inflation have not changed very much (besides in the bubble in mid 2000's).
Previously on that one income a reasonable 40 years ago family could have a home, a TV, a car, and take inexpensive road trip vacations. Now the typical family has multiple cars, homes much larger than in the past, a vacation could be flying to some destination, $100 cable bill, $150 phone bill...
So if one wanted to live like in the past it is certainly attainable on a single reasonable income. That may mean "only" having a 1700 sf house with one bathroom and one car.
Even since I was a child things have changed a lot. The typical new home today would be something I would have considered luxury as a child. I think that things changed a lot in the dot-com -> Real estate bubble era that gave Americans a taste for luxury that is now the normal.
This might be true as a national average, but it is definitely not true in areas where there has been consistent competition for housing. It's that competition which will push housing prices up to levels that require two middle-class incomes.
This includes most major cities. Even excluding bubbles, desirable urban real estate in the US has skyrocketed much faster than inflation. There are a lot of factors in that, but one of them is that the market has now priced in the fact that most homeowners in these areas are now dual income.
I'm not sure that's true. Take Houston, for example. Some of the most expensive neighborhoods were originally suburbs in the 1950s filled with workers who commuted downtown. Now those neighborhoods are considered urban and there is an entirely new ring of suburbs beyond them (in fact two such rings). The homes in these now-urban neighborhoods are now all $1M+.
A family with a reasonable income of $100k will be completely priced out of all those homes. They'll be forced to either live much further out (meaning very long commutes) or to live in an apartment/condo or, maybe, a townhouse. If they had lived in the 50s, they'd have been living in a neighborhood that is now reserved for surgeons, corporate attorneys, and even CEOs.
I agree with the attitude here but cultural norms have shifted so much that there isn't nearly enough supply of those sorts of homes. The reality is that people typically "downsize" by moving far outside of town and commuting long distances, which isn't really a solution to the problem.
You also produce more, which means you can export more, thus giving the economy a boost overall which raises standards of living because you can get more foreign goods for your $.
As dual-income households have become more the norm, it's really the household income, rather than an individual's income, that's a better measure of richness.
That depends on how the income is spent. If people spend their extra income on leisure activities, luxury goods, etc then it'll absolutely mean that a high household income will be a good measure of richness. That's obvious.
However, if dual income households decide to spend their income on investing in a better house, what will happen is that it'll push house prices up - a finite supply of housing stock means there'll be competition for the best homes, so people will have to pay more for them. That demand side pressure will filter down the housing ladder and pull all the prices up. After thirty or forty years this will have had the effect on house prices that single income families just can't afford to buy. Further, it'll mean that dual income families have to retain two incomes, so parents wanting to stay at home when they have children simply won't be able to afford to.
This has already happened in the UK. Lots of pundits are predicting a crash because the first-time buyers can't afford to buy, meaning no one is buying the lower price houses, and that's going to pull the whole thing down.
Mind you, the pundits have been saying as much for about twenty years.
This has already happened in almost every major city in the United States. My anecdotal observation is that townhomes in major cities are affordable to single folks with one (low six figure) income and single family homes require two such incomes. And that actually does make a bit of sense, as a married couple has a higher probability of making good use of a SFH than a single person does.
I don't predict a crash (at least not based on this phenomenon alone) precisely due to the abundance of townhomes that are being built in the US. In Houston, for instance, even though the townhomes are sort of hated since they're replacing old, historic bungalows in many cases, they are the one thing keeping the city somewhat affordable. Cities which have extreme zoning laws preventing this sort of development might be more susceptible to a crash.
Housing supply isn't fixed. When house prices go up, people build more houses.
There is "rent seeking" (a microeconomics term for a market inefficiency using politics for wealth creation instead of true wealth creation) by having zoning laws which keep land use density artificially reduced as well as over-using "historic landmark" laws. The zoning restrictions on land use and the overuse of historic landmark laws effectively make very wealthy landlords and other landowners wealthier still at the cost to others. See writings of Harvard economist Edward Glaeser for more details.
This is something that can be fixed by reducing the market inefficiency of "rent seeking" through state law which overrides the desires of wealthy landowners at the city level.
Zoning laws can pose a lot of restrictions on where those houses can be built, so it depends heavily on the city. Basic physical obstructions and topology also play a role. Adding more homes onto far out suburbs isn't going to do much to massage the problem of unaffordable housing near downtown office districts if it means that homeowners have to commute an untenable distance.
Which makes substantial profits for the home builders but very little in the way of more affordable housing.
The price of a barrel of oil is determined by supply and demand. As the price goes up, more production is brought online which is now economically feasible. So at $100/barrel you've got the Canadian tar sands projects which make oil for something like $80 a barrel worth of cost so the company can make $20 a barrel.
But there are still tons of wells out in west Texas that are producing oil for $20 a barrel in cost. The people that own those wells are making $80 a barrel in profits.
If housing prices are high home builders might be able to build less expensive houses but they have no incentive to. They can sell the houses they build at market rather than below market prices. It might increase the supply but that doesn't necessarily translate into reduced prices in any kind of a reasonable timeframe.
The increased housing prices are caused by "rent seeking" by wealthy landlords (think people who own hundreds of rental units for example) that want to increase the value of their property. They do this through zoning ordinances that artificially restrict zoning density and also through overuse of "historic preservation" laws. See Harvard economist Edward Glaeser's writings for more details. He very clearly demonstrates the increasing cost of land and as distinct from the cost of construction.
It is important to understand this reason, "rent seeking" in microeconomics makes for market inefficiencies. It is a means for people to enrich themselves through politics by making people pay more for rent or for buying a house instead of through actual wealth creation. The solution to the ever increasing housing prices is to reverse the "rent seeking" by fixing zoning laws so that there are not unfair zoning density restrictions and restricting the overuse of "historic landmark" laws.
The availability of usable land is fixed. There's a limited amount of single-family homes you can build in a given area.
In the UK when house prices go up people tend to build more houses at the top end of the market where there's the most profit. No one builds cheap houses that people on a single income could afford. I don't know if the US is similar.
But surely once the top end is satisfied the prices will have to come down or the homes will be left vacant which no developer is going to want.
I think there are a couple of factors you're overlooking.
Consider the case of a dental hygienist married to a nurse. In SF, they both earn about 110k a year. So $220k is a high salary, comparable to a physician in a modestly paying speciality.
Here's the thing... I think payroll deductions apply to the entire 110K of each dh and nurse's salary, but only the first $110k of the physicians salary. However, the second salary in the two-income family will be taxed at a high rate, on top of the first salary. Furthermore, physician's husband, who doesn't work, is available for full time child care. The nurse and dental hygienist have to arrange full time day care for their two young kids, which runs about $20-25,000k a year per kid in SF. And because they are a very high income family, over the "ultra-rich" 200k threshold, they don't get a tax break.
Even close to 100k, that second salary may have a marginal value close to zero once kids enter the picture.
That doesn't mean you shouldn't work just because the marginal value is low in the moment - eventually you get to come back up for air, and people who continued to work are often much better positioned to advance again. So there are benefits.
In progressive tax situations that is called the 'marriage penalty' (second salary is all taxed at the higher marginal rate) which is mitigated somewhat by changing the tax thresholds for married people filing jointly. You can file separately of course, and it seems a number of people are living together and filing as individuals, it gets complicated as you get kids because they become dependents (and a tax credit) on one of the people's return.
There is a reason all this stuff keeps a legion of tax attorneys and CPAs employed.
Married filing separately doesn't change tax rates, it just splits the tax into two paper trails.
That's a red herring.
When people talk about inequality as a serious economic problem, they're not talking about any discrepancy between households living off a salary or two. They're not even talking about the discrepancy between the ninety-nine and the one percent -- they're talking about the point-one percent and everyone else.
I don't think it's as much of a red herring as you suggest. More and more, a dual income is required for basic sustenance. That has a significant impact in many intangible ways: stress, family dynamics, freedom to pursue entrepreneurial efforts, etc.
It was suggested that dual incomes were a cause of increased inequality, not a symptom. And that's wrong.
The inequality that's an economic problem is not between those earning more than 100k and those earning less [1]. The problematic inequality is the difference between those earning more than 1M and those earning less. [2]
I absolutely agree that dual incomes are an increasing-necessity, but they're a symptom of inequality. They're more-required because the "below 1M" earners have not been seeing their wages rise with their increased productivity. And those "lost wages" are going to the "above 1M" crowd -- not the above 100k crowd.
[1] Two incomes are not making anyone cross that line, save a hypothetical family with two executives at small-to-mid-size firms. And the problem is primarily the rates-of-change of wages between those earning more than 1M and those earning less. That there's a gulf is not, by itself, much of a problem. That it's getting wider, is concerning. That tangible objective increases in worker output and efficiency are not translating into increased worker rewards is the ticking time bomb.