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The impoverishment of the West

Sep 21, 2011
The impoverishment of the West
By Martin Hutchinson

The US Census Bureau’s study of American incomes, poverty and health coverage issued last week was most interesting when considered, not as a metric of this recession, but as a long-term picture of where American living standards are going.

If median incomes are back to 1996 levels in real terms, then the stagnation that followed the 1973 living standards peak has intensified and the prognostication for the future must be thoroughly unpleasant. It’s thus worth examining how much of the decline is only a medium-term problem, due to mistaken policies that can be reversed, and how much is an inevitable and permanent decline from what may have been a fleeting middle-class Nirvana in 1950-1973.

Real US median household income of US$49,445 in 2010 was 6.4% below its level in 2007 and 7.3% below its peak in 1999. Given the performance of the conomy, it’s likely this position has worsened in 2011. More alarmingly, median household income is only 0.9% above its value in 1989 and 6.3% above its level of 1973.

For most households, an entire working life of 38 years has elapsed with no significant increase in living standards. As is well known, the dispersion of income has also sharply increased; in 1973 only 1.2% of households had an income above $200,000 in 2010 dollars, whereas in 2010 3.9% of households exceeded that level. The middle middle class, with incomes of $35,000 to $74,999 has shrunk from 40% of the population to 31%.

Even this grim tale does not give a full picture of the decline, because household income has been sustained compared to 1973 by a much higher proportion of women in the workforce. Real median male earnings have declined by 4% since 1973, whether you consider all men or only those with full-time, year-round jobs.

However the picture is brighter for women, whose workforce participation rate was around 70% of men’s in 1973 if you consider all jobs, or a mere 43% of men’s participation if you consider only full-time, year-round jobs. Today female workforce participation is 90% of male whichever way you look at it. Furthermore, women’s earnings have done much better than men’s, up by 85% for all workers or 33% when only full-time workers are considered. Still the bottom line is that, for traditional families, real incomes have only increased since 1973 at the cost of the wife going out to work and childcare being hired (if necessary).

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