Typical income no longer covers major costs: Study

The typical income for an American male is no longer enough to cover major costs including housing, health care, transportation and education, according to a new study from the left-leaning Manhattan Institute.

In 1985, median male income could cover the annual costs of those four expenditures with 30 weeks worth of work, leaving the remaining 22 weeks of income for savings and other expenditures. By 2018, the costs amounted to 53 weeks of work.

The study’s author, Oren Cass, argued that despite some economic data suggesting a continued growth in living standards, the way economists measure costs has led to some problems.

“By conventional measures, material living standards everywhere in the income distribution are at all-time highs, and technological progress continues to improve them,” he wrote in the study. “Yet many jobs able to support a family in the past no longer do.”

Cass argued that a quirk of economic data collection could lead to misleading conclusions. When economists try to measure the cost of goods, he says, they factor in improvements in quality.

For example, if the cost of an iPhone doubled from its 2007 debut to the iPhone 11 model, economists might say the cost didn’t really go up quite as much because consumers are getting so much more bang for their buck in the latest model.

But where someone could easily buy a cheaper alternative to an iPhone, the same may not be true for health care, housing, transportation and education.

Cass argued that just because products and services in those categories were better, it didn’t mean people could afford them at their new, higher prices.

“Start putting these things together, and you find a situation where major costs facing families have skyrocketed unsustainably in ways our economics is incapable of acknowledging. Then we gloss over the underlying assumptions and say ‘inflation-adjusted wages look good,'” he wrote.

His calculations on cost were based on a model he dubbed the Cost of Thriving Index (COTI), which he said better reflected people’s lived experiences than inflation-adjusted wages. The COTI amounts to the number of weeks a typical worker must work to cover those basic costs.

Cass’s paper has caused a stir, and sparked a fierce debate among economists, who criticized it on a number of fronts.

Some pointed to the fact that he hones in on male workers.

“As of 2017, over 40% of breadwinners were women. More women are working than men today. Why is a proposed quality of living measure ignoring this reality?” asked Jillian McGrath, an economist at Third Way, a think tank.

But….this isn’t the experience of most American families today…

As of 2017, over 40% of breadwinners were women. More women are working than men today. Why is a proposed quality of living measure ignoring this reality? pic.twitter.com/sn3SRONKRF

— Jillian McGrath (@jillianmmcgrath) February 20, 2020

Others argued about what formula was most appropriate for measuring inflation, and wondered whether Cass’s formula was double-counting certain benefits.

Stan Veuger, a resident fellow at the American Enterprise Institute, said that Cass was wrongly including employer contributions toward health care costs in his calculations, incorrectly inflating the costs to workers.

To be clear: half of the increase in spending in that figure is still employer contributions to health insurance, which are not counted as part of the wage. That alone should end our consideration of the merits.

— Stan Veuger (@stanveuger) February 21, 2020

But the paper made a splash, and was circulated among political pundits and politicians from across the spectrum, such as liberal Crooked Media co-founder Jon Lovett and conservative Missouri Sen. Josh Hawley (R).

Really interesting look at what is hiding beneath rosier economic statistics. https://t.co/brJDoxScSn

— Jon Lovett (@jonlovett) February 21, 2020

If you want to understand the pressure felt by the American middle, read this. All of it https://t.co/xvzyndGA0k

— Josh Hawley (@HawleyMO) February 20, 2020