America’s Falling Standard of Living: A Look at the Last Generation

American’s have had a rude awakening in the last few years, with the devastating impact of the Great Recession on so many people’s lives, from high unemployment and wage losses, to record high foreclosure rates pushing once-homeowners to move and sign a residential lease instead. Painful as this process has been, it’s served as a radical wake-up call, as it becomes more apparent that America’s standard of living has actually declined in the last generation, and has every sign of continuing to do so.

Over the course of the last two decades, the gain in income in America has been only 3% (adjusting for inflation), which is basically flat growth. While that overall figure may not sound so bad, it’s worth mentioning that that number is actually skewed, belying two artificial forces: baby boomers (the largest percentage generation in the workforce), are currently in their peak earning years under outdated employment structures, and the number of working women (particularly in higher-earning positions) has increased.

What that means, from a practical perspective, is that our income “growth” in the last twenty years is an illusion. For the most similar cohort of workers twenty years ago, full-time working men ages 45-54, incomes dropped by a disturbing 7.4% from 1989-2009. Even more unsettling, incomes for men without college degrees have dived by 31% in that period, as the traditional backbone for these workers, the manufacturing sector, has largely disappeared from America’s economy.

You might be wondering about cost of living, and whether that too has decreased, which would preserve standard of living. While a few things are less expensive today, the biggest expenses for the average American have skyrocketed. Housing costs, including both those on a residential lease and those who own their own homes, has jumped from 3.5 times a full-time male employee’s salary (in 1980) to 4.6 times his salary in 2009. In 2007, that figure was even more disturbing, at an ugly 5.5 times salary.

In 1980, the average family’s health insurance cost for a year was $764 (inflation adjusted), but in 2009 that figure had more than doubled, to $1,785. And what’s even more disheartening is that the coverage this buys is far less comprehensive (or comprehensible, for that matter) than the coverage in 1980.

Also more expensive is college tuition and textbooks. College tuition averaged 14% of a man’s full-time annual salary in 1980, but in 2009 that figure had more than doubled to 30%.

You’ll be working longer, too. Social Security and employee pension plans are likely to fade into irrelevance, as fewer businesses offer pensions (only 33% of private jobs now include pensions, as opposed to 62% in 1980), and as Social Security faces inevitable benefit cuts and age increases.

Yet despite all of these statistics, Americans don’t feel like their standard of living has decreased, when compared to their parents’ generation. Polls show that more than 88% of Americans report they’re doing as well, or better than, their parents did. Is this merely unbridled optimism, or are there some things that actually have gotten better?

The answer is a little of each. First of all, consumer and household goods have grown less expensive, due to the cheaper manufacturing costs, as they’re now produced overseas where labor is cheaper (and they don’t pay pensions). This is, of course, a bitterly amusing irony, because we’ve paid for those cheaper goods with our jobs, particularly those of non-college-educated men. Still, cheap clothing, electronics, and other goods create a pleasant illusion that we Americans have it all, and with real estate being built in ever-larger square footage, we need plenty of fancy junk to fill all that empty space. And hey, when homeowners lose their fancy homes to foreclosure, the residential lease market becomes flooded with cheaper, fancier rental housing, as rents and real estate prices drop. Historically residential lease units have been the domain of the poorer classes, but the housing bubble has left a surplus of luxury rental real estate.

It’s time for America to take a cold, hard look at its economic niche in the world, because we are no longer capable of manufacturing cheap goods, and we can’t all just run to Uncle Sam or the service industries to give us work. If we are to hone our competitive edge, we’ll need to be able to offer the rest of the world the best that money can buy, instead simply what’s adequate. We need to offer the most advanced, the strongest, the fastest, the most creative, the highest quality, because we certainly won’t be able to offer the cheapest, and if we’ve already been losing our standard of living over the last 20-30 years, we’ll need to move fast if we want our children to have better lives than we have.