Falling Behind. Robert Frank

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      Figure B. Monthly hours of work required for the median earner to rent the median house, 1950–2010. Source: Calculated from data in figure A.

      Figure A shows the time profiles of median U.S. house prices and median hourly earnings for American workers in the census years from 1950 to 2010. As discussed, the distribution of income was exceptionally stable in the years up to roughly 1970. Median hourly earnings were rising at a relatively rapid clip, slightly exceeding the rise in median house prices, and incomes elsewhere in the distribution were rising at approximately the same rate. In contrast, most income growth after 1970 accrued to top earners, while median hourly wages increased only slightly. And yet median house prices grew much more rapidly during the latter period.

      The upshot is that by 2010, the median earner had to work substantially more hours each month than in 1950 to gain access to a house at the midpoint of the housing price distribution (see figure B). For illustrative purposes, I assume that the implicit monthly cost of a given house is 1 percent of its purchase price. During the immediate postwar decades, when the income distribution was stable, the median burden of homeownership varied little and was actually slightly lower in 1970 (41.5 monthly hours of work) than in 1950 (42.5 hours). But the burden began rising sharply in 1970, and by 2010, the median worker had to work 82.9 hours a month—almost twice as many as in 1970—to put his family into a house of median price.

      Housing is of course not the only expenditure that is sensitive to context. Increasing concentration of income at the top has also spawned similar expenditure cascades for items such as clothing, gifts, birthday parties, and other celebrations to mark special occasions.⁹ In these domains as well, the median earner must spend more than before or else experience significant adverse consequences of one kind or another.

      Of course, not all such spending has been purely wasteful. Although the utility conferred by a diamond ring may depend largely on its relative size and quality, for example, even the lone resident of a desert island might take additional pleasure in the way an absolutely larger stone refracts the light. Yet surely much of the extra spending of recent years has been a relatively inefficient source of extra utility. The average American wedding now costs almost thirty thousand dollars, nearly twice as much as in 1990.¹⁰ Does anyone believe that the extra spending has made couples and their families any happier?

      Although additional outlays for many consumption goods—such as houses beyond a certain size—don’t accomplish much, they crowd out other forms of spending that would produce real improvements in the quality of life. If houses grew less rapidly, for example, we could invest in mass transit systems that would yield shorter, less stressful commutes and thereby free up more time to spend with friends and family. Or we could support medical research and safety investments that would reduce premature death. The list goes on.