Cass and COTI

                                         Cass and COTI

Is the average American better off today compared to 1985? No according to a recent much-publicized analysis by Oren Cass, who paints a pretty pessimistic picture of wage stagnation, a middle class in decline, rising prices, and an ongoing deterioration in the standard of living for the average American over the last 35 years. Cass, the executive director of American Compass, claims that his findings support the popular perception that: “A generation ago, the [male] worker could be confident in his ability to provide his family not only with the basics of food, clothing, and shelter, but also with the middle-class essentials of a house, a car, health care, and education. Now he cannot.”

More specifically, at the core of Cass’s story of gloom and doom is his claim that “In 1985, the typical male worker could cover a family of four’s major expenditures (housing, health care, transportation, education) on 30 weeks of salary. By 2018 it took 53 weeks. Which is a problem, there being 52 weeks in a year (see the top table above and the second chart).” In his report, Cass creates what he calls the “Cost of Thriving Index” which measures the number of weeks of income required for a single male breadwinner to cover the four major expenditure categories mentioned above for a typical family of four: Housing, Health Care, Transportation, and Education.

Cost-of-Thriving Index (COTI): the number of weeks of the median male wage required to pay for rent on a three-bedroom house at the 40th percentile of a local market’s prices, a family health insurance premium, a semester of public college, and the operation of a vehicle. …The COTI shows a declining capacity of a worker to meet the major costs of a typical middle-class household. As the COTI basket has become unaffordable, families have found workarounds, like having more household members work more hours, making do without, borrowing, and relying on government support. Each of these comes with its own costs, undermines the stability of families and the rationale for their formation, and creates high levels of stress and uncertainty. …The U.S. economy of recent decades has eroded, rather than reinforced, the American model of thriving, self-sufficient fami­lies.

One of Cass' graphs:



There has been a lot of discussion here, reminiscent of the response to Piketty's statistics. If one looks at the true out-of-pocket expense, the stats probably support increased, not decreased, earning power. With a couple of additional observations. Health care and education, where government interferes most prominently, has increased their costs considerably and, as shown below, the market shows what people want and are willing to do.

"An unfortunate undercurrent in this discussion is the implication that women’s participation in the labor force has been a disappointing social development, hurting families and reducing marriage rates. And there is also the claim that many women are working because it takes two incomes to finance a middle-class life. This is Cass’s conclusion.

But this likely gets the causation backward. Take education as an example. Lots of factors affect its price. One is higher incomes. As a society gets richer, its willingness to spend on these services increases. And as the demand for education services goes up, driven by higher incomes, so does its price. (Indeed, Cass’s chart shows what single- and dual-earner households choose to buy, and compares it with what one male earner makes.) And we have already seen that male workers have experienced significant wage gains."
(a number of sources, including Perry and Winship)