Editor’s note: This is part of a series by Bob Sullivan called The Restless Project.
“Americans don’t have a debt problem, they have a spending problem.”
That conventional wisdom is repeated so often that many folks believe it uncontested. It doesn’t stand up to examination, however.
What Americans have, quite clearly, is an income problem. Median household income, adjusted for inflation, has hovered between $50,000 and $55,000 (in 2013 dollars) since before the turn of the century. Through the dot-com bubble, the housing bubble, the Great Recession. Flat.
And if you stretch the range we’ll call flat just a little to $45,000, you’ll see that wages first popped up to that level back in 1968.
You can forgo all the lattes and $100 sneakers you want, but you aren’t going to save enough to compensate for wages that have been roughly flat since man set foot on the moon. For some time, Americans have compensated for this wage gap by borrowing: student loans, credit cards, easy mortgages. That gig seems up now, too. It’s time to face the real problem: pay.
The phrase “wage stagnation” is enough to make people fall asleep at the wheel. And “adjusted” dollars make the argument seem less convincing for some. So it’s easier to see it in action, through the eyes of a worker living it.
Daniel (who requested his last name be withheld) saw The Restless Project recently and didn’t offer up his monthly budget for scrutiny, as many readers did. Instead, he offered up details of his budget from three decades ago, adding some context along the way. It tells the story.
I am sure you have lots of budgets to compare today, too, but I thought you might be interested to know that I made just as much per hour for doing construction work in 1987 as someone makes on average doing it now, though I was paid a bit above average, being in a union.
In 1987, I worked as a journeyman carpenter and made $14.65 an hour, plus a dollar an hour was put into a vacation fund for me. Right as I quit the construction industry, the wages went to $16.10 (union), which is what the average wage is now, in 2014, almost 30 years later.
In 1987 my taxes were enough to drop my pay to about $11 an hour, or around $440 a week take-home. My rent for a one-bedroom on a river in one of the nicest areas of Vancouver (Wash.) was $195 a month. My electric bill was always under $40, even during the cold times. My car insurance was about $20 per month. My day care for my son, before he went to school, was $25 a week. I dropped him off at 6:30 a.m., and they got him off to school, and then I picked him up about 4 p.m., and they had picked him up from school.
The insurance I had back then was probably better than anything anyone but a congressman or a CEO gets now. I could go to any doctor, and I didn’t need anyone’s approval. Today, I pay about $700 a month for my insurance for myself and my wife, and my company pays about the same. It is really crappy insurance.
Today, I don’t live nearly as well on $57 per hour as I once did on $14.65. (His take-home is about $33 after taxes.)
You don’t have to look hard to find similar stories. Here’s a great one from Salon showing how easily an unskilled teenaged laborer in a starter job could afford a decent apartment in Chicago back in 1965. It’s stylish to say that today’s young people are too lazy to move out on their own, but that’s just not fair.
Rob Stanley, the subject of that story, earned $2.32 an hour back in 1965, enough to buy a car and have money left over for fun. Today, 50 years later, Rob Stanley would be earning perhaps $8 an hour at a fast-food place. And as you can easily calculate for yourself, there is no place in America where a minimum-wage job pays enough to let someone afford a decent apartment. At $8 an hour, that worker has about $350 to spend on housing monthly. Good luck with that.
But forget about minimum wage. I really want to talk about middle-class wages, which are stuck, and how that’s driving us all mad. That’s the reason half of all Americans, remarkably, have fewer assets than they did back in 2000.
That’s the reason there’s more debt. As a reminder, there is now more outstanding student debt in America than credit card debt. My father, and many fathers and mothers before him, earned a college degree and a graduate degree without any debt.
Try this trick yourself: Just imagine your budget from 1995, or 1985, and compare your income. A friend recently did and came up with this stark conclusion: “In my own case, when adjusted for inflation, my current salary is actually 53 percent less in purchasing power than the salary I earned in 1988, even though the gross figure is much higher.”
You could try this trick using the BLS inflation calculator, which is based on the consumer price index, but that’s often misleading. The BLS uses a funky way to calculate housing costs, and the government has an enormous incentive to understate inflation (Social Security increases are tied to it, for example). And it does a terrible job of accounting for huge increases in student loan debt.
So the better method is one right at hand. What were you earning 10, 20 or 30 years ago, and what were you paying for the basics? Those numbers won’t lie.
Many of you have enjoyed career success, which might have led to wage increases, and congrats to you. If so, you might take a moment to employ Daniel’s method. What would 24-year-old you be earning today, and how much would it cost you to afford the basics? I’d love to hear from you at Bob at BobSullivan dot net.
More from Bob Sullivan:
- The Restless Project: This Is Why You Can’t Sleep at Night
- Do You Feel Stuck? New Book Offers 8 Ways to Break Free
- Big Data, Kill Switches, Facebook Stalking — Debt Collection Goes High-Tech
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