A new study by Oren Cass of the Manhattan Institute in the US confirms that 52 weeks of work is simply not enough for the average American worker who wants to live a “middle-class” life. For women, the situation is even worse: it takes 66 weeks for them to live a middle-class life.
According to media reports, these figures are a far cry from 1985, when the median weekly wage was only 30 weeks for men and 45 weeks for women.
The paper attempts to compile a “cost of prosperity” index to measure quality of life. The “middle class” cost of living is defined as the cost of a three-bedroom home, family health insurance, cars and related costs, plus one semester of tuition at a public university, which is slightly below the market median price.
The study’s author, Oren Kass, was an adviser to Mitt Romney’s 2012 presidential campaign. He said that while his index was not perfect and did not take into account the huge differences in costs and revenues, it was a “starting point”. Nor does it take into account larger houses, more advanced medical care and safer cars.
“The huge difference between data and experience is confusing the policy debate in the United States,” Mr. Kass said in introducing the issue. The figures seem to suggest that households have enjoyed an unprecedented boom, with wages (in bad words) holding back inflation, or (in other words) rising far more than prices. By traditional measures, material living standards are at an all-time high in all parts of income distribution, and technological advances continue to raise these levels. “
He went on: “However, many of the jobs that used to be able to support their families are now unnecessary. Millennials are worse off than Gen Xers, who themselves lag behind baby boomers. These stories seem irreconcilable. “
Mr Kass hit the fact that the improvement in quality of life was enough to outstrip inflation and the widening gap between rich and poor. If workers don’t grow fast enough to buy newer and better products, they still want to use worse but cheaper products, he said.
He also found that since 1980, only men with bachelor’s degrees have seen their incomes rise faster than consumer prices.
“The explanation is this: inflation is not a measure of affordability, ” Mr Kass concludes. The key assumptions constructed in the inflation index to measure potential upward pressure on prices across the economy are different from, often the opposite, of the key assumptions necessary to assess the economic choices and constraints faced by households. When analysts use inflation adjustments to compare household resources, they choose the wrong vantage point, and their views are vague. “
His study also concluded that economists and families see three things differently:
“Quality adjustment, the prices of goods and services rise sharply, but the proportion of the measured improvement in quality may be unaffordable and have no effect on inflation.”
Risk-sharing, new products and services may increase the cost of the population as a whole, but will benefit only a small number of people and have no impact on inflation.
Social norms, changes in behaviour and expectations within society can change the value or necessity of goods or services without affecting inflation.