Twelfth Global Studies Conference

Abstract

A convergence of several trends immiserated middle and lower-income households in the US over the last forty years. Gross Incomes barely kept pace with inflation and the gap down to Net Incomes increased substantially during the period. The author identifies an alternative assessment instrument to Gross Median Income in the form of resources available at the household level as a result of labor earnings; Spendable Earnings. To explain reductions in Spendable Earnings, and therefore standards of living, the author uses an Opportunity Set Model in the Wisconsin tradition. This methodology internalizes the privatization of pensions and health care costs, and increased individual financial risks. Additionally, shifting the burden of taxation from Federal to State and Local incidence has hidden the increased costs of governance borne by middle and lower income households. Spendable Earnings explains the reduced standard of living for a wide range of US Households even as Gross Income performance measures indicate modest household gains. Individually, each trend encroached on the value of labor property as measured by the opportunity set of real wages. The author shows the cumulative effect of disconnecting Household Spendable Earnings from policy, financial intermediaries, and personal financial planning. Recent policy changes, while reducing access to health insurance and personal pension products, have increased household level spendable earnings among the middle quintile of US households. This has reinforced the perception that economics is disconnected from average household experiences.