Now and Then

by Don Boudreaux on September 5, 2006

in Standard of Living

This interesting report from the U.S. Bureau of Labor Statistics tracks changes in American living standards over the 20th century.

Here are some facts revealed in this study that I find either surprising or especially important:

(1) It’s surprising that the percentage of the average household’s income spent on non-essential items was significantly higher in the mid-1930s than in the late 19-teens (about 28 percent compared to about 22 percent in 1918-19 — and about 21 percent in 1901).

(2) It’s important to note that throughout the 20th century, the share of the average household’s income spent on non-essential items increased steadily, although noticeably slowing down between 1984-1985 and 2002-2003.

(3) It’s surprising that the percentage of women in the workforce increased steadily throughout the century, with no noticeable jump in the 1960s or 1970s (where I would have expected to find such a jump).

(4) It’s surprising that average household annual expenditures changed its trajectory in the mid-1970s from one of rather modest decadal increases before then to much more dramatic increases since then. (It’s true that these data are in nominal dollars, but the continuing hefty increases in household annual expenditures post-1975 seem not much muted by the collapse of inflation rates from the mid-1980s on.)

(5) It’s surprising (and important to note) that one-hundred years ago, nearly 80 percent of the expenditures of the average American household were for food, clothing, and housing; today this figure is about 50 percent.

(6) It’s surprising (and important to note) that in 1901 only 19 percent of U.S. families owned a home; by 1972-1973, this figure had risen to 58.8; indeed, the percent of familiies who owned their homes outright — with no mortgage — was 25.3 percent.  In 2002-2003, the percent of families who own their own home is even higher — at 67 percent; likewise with the percent of families today who own their homes outright — sans mortgage — 26 percent.
…………..

It takes mighty clever sophistry to spin these, and other related, numbers in order to conclude that Americans today are economically not much better off than we were in the mid-1970s.

(Hat tip to Reason’s Ted Balaker.)

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{ 12 comments }

Steve September 5, 2006 at 6:05 pm

Don,

I agree with the thrust of this post (and others that make the same point), but how much of the change increase in the percentage of income spent on non-essential items is due to a finer division of labor?

I could walk to work, fix my own furnace, and do my yardwork, laundry, and housework myself, but I couldn't make my current income. Say I make $100 now, and spend $50 of it on food, clothing, and housing, and $50 on other non-essential goods and services. If If I took a lower paying job closer to home, I might make $75, spend $50 on essential goods, $25 on non-essential goods, and do stuff that used to cost me $20 myself. My loss in welfare might only be $5.

That said, I'm all for increased division of labor (for God's sake, don't do your own taxes).

Steve September 5, 2006 at 6:06 pm

Don,

I agree with the thrust of this post (and others that make the same point), but how much of the change increase in the percentage of income spent on non-essential items is due to a finer division of labor?

I could walk to work, fix my own furnace, and do my yardwork, laundry, and housework myself, but I couldn't make my current income. Say I make $100 now, and spend $50 of it on food, clothing, and housing, and $50 on other non-essential goods and services. If If I took a lower paying job closer to home, I might make $75, spend $50 on essential goods, $25 on non-essential goods, and do stuff that used to cost me $20 myself. My loss in welfare might only be $5.

That said, I'm all for increased division of labor (for God's sake, don't do your own taxes).

CS September 5, 2006 at 6:16 pm

I imagine that one factor influencing pessimistic rhetoric among left-wing politicians is the enormous number of union contracts and government benefits tied to the measured inflation rate. For instance, using chain-weighted inflation estimates for Social Security benefits indexation has been a 'conservative' position, while the conventional CPI has been championed by the left in that context.

JohnDewey September 5, 2006 at 7:23 pm

"It's surprising that the percentage of women in the workforce increased steadily throughout the century, with no noticeable jump in the 1960s or 1970s (where I would have expected to find such a jump).

Perhaps women's participation increased as early as the 50's as Boomers arrived. Demand for school teachers and cafeteria workers grew steadily through the late 50's and early 60's. Other child-related female jobs – dental assistants, for example – increased as well.

As Boomers aged, fewer teachers and child-oriented workers were required. But the liberation movement probably offset that decline.

Young women became liberated from traditional female roles in the 70's. But as I remember it, older women were not so liberated 30 years ago.

Two decades were required for younger liberated women – our wives – to completely replace older non-liberated women – our mothers and grandmothers.

What was not gradual was women's participation in specific jobs: in the professions other than teaching and nursing; and in the blue-collar workforce.

Steven Horwitz September 5, 2006 at 8:15 pm

Just to follow up on John Dewey: one very common line of argument among feminist scholars is that the women's revolution of the 1960s was a *consequence* not a cause of women's increased labor market participation. It was only as women became more involved in the market and a few began to crack the traditionally male professions that the need to change thinking around gender and labor became so apparent. Plus those pathbreakers began to have (female) children.

The smoothness of the trend that Don found comes as a surprise to my students in my Econ of Gender course as well, as they believe, as Don may have, that the 60s and 70s was a revolution in behavior, rather than one in ideas.

Tom D. September 6, 2006 at 3:40 am

Don't get too carried away. The government owned and operated railroad in my state operates with the same equipment as it did during the 1970's. In this case, the physical plant is only thirty years older.

How funny that a government service would be the exception to improving living standards. In fairness, the authorities are working hard to control the smell of the bathrooms. Unfortunately, many "customers" still refuse to sit on the cars that contain rest rooms.

triticale September 6, 2006 at 2:45 pm

Altho Steve has a valid point regarding division of labor, I figure that based on what I was quoted to have it done, I made a higher hourly wage installing my own water heater than I make on my best-paying tech contracts.

spencer September 7, 2006 at 10:55 am

What about the sharp shift in the percent of spending on non-necessities about 1984.

From 1900 to 1984 the chart shows that spending on non-necessities rose at a very steady pace from a little over 20% at the start of the century to almost 50% in 1984.

But suddendly in 1984 there was a major kink in the chart and the previous sharp rise flatten-out sharply and since 1984 the share of spending on non-necessaties has hardly moved.

This chart implies that there was a sharp
and severe shift in the rate of gain in the
well-being of the population around 1984.

Am I reading this wrong?

Don Boudreaux September 7, 2006 at 1:18 pm

Spencer,

You read the chart just as I do (as I mention in the post in my point #2).

Don

JohnDewey September 7, 2006 at 2:25 pm

Doesn't "spending on non-necessities" include everything except food, clothing, and shelter? I couldn't find an exact definition. But on page 42 of the report, I found this sentence:

"Expenditures for food, housing, and clothing accounted for 51.4% of household spending"

The chart on page 41 shows expenditure share for non-necessities to be about 49%.

The Boomer effect may have influenced the split between necessities and non-necessities. The last of the Boomers entered child-bearing years about 1982. Most Boomers put off family building until their late 20's, or about the mid-80's for at least half of them. Familiy-building likely raises spending for food, housing, and clothing, thus increasing the "necessities" share.

Of course, the increase in housing size since the 80's probably raised the share of "necessities" for all generations.

Could the change after 1984 – the halt in spending share for non-necessities – really be the result of demographics and personal choices? After all, a 4,000 sq ft suburban home is really not a necessity, even though BLS defnies it as such.

JohnDewey September 7, 2006 at 3:11 pm

The graphs in the BLS report appear distorted to me. The horizontal axis seems to be divided into equal intervals, with each hash mark corresponding to a data point. However, the gaps in years between data points are not equal:

1901 to 1918 – 17 yrs
1918 to 1934 – 16 yrs
1934 to 1950 – 16 yrs
1950 to 1960 – 10 yrs
1960 to 1972 – 12 yrs
1972 to 1984 – 12 yrs
1984 to 1996 – 12 yrs
1996 to 2002 – 6 yrs

I've got to get back to my paying job, so I can't replot the data rifgt now. But I think the steady increase in non-necessities share – from 1918 to 1984 -will not appear so steady if the horizontal scale is corrected. Further, the growth in non-necessities share after 1996 would not appear so slight.

John Perry, MD September 8, 2006 at 9:01 am

Does anyone know how the word homeowner, homeownership, etc. became so meaningless? Now we are forced into occasionally admitting truth by adding the word outright! To own means to have no lein or encumbrances attached to said property. Test: stop all of your payments and see who ends up with property. That is the owner. My hopes are hopeless: that we could speak truth and use words accordingly.

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