Decline of Paired-Adult Households, and the Rise of Single-Adult Households

My research in household finances suggests that marriage is a major determinant of households’ financial fortunes.  Married households generally do much better financially, because they have the potential for multiple income streams and the ability to share costs.  This week’s posts probe the relationship between changing living arrangements and households finances.  In this post, we look at the rising incidence of living outside of paired-unions.

Decline Paired Unions Since 1967

The proportion of households headed by adults in a paired union has declined markedly since 1970. This change is depicted in the figure below, which is based on Census data.1

The proportion of married adults has declined substantially, while the incidence of cohabitation has grown dramatically. Rising cohabitation rates have not fully offset the decline in marriage. In 1967, 70.3% of US adults lived with a spouse, 0.4% lived with a non-spousal partner, and about 7.6% lived alone. By 2015, 51.4% lived with a spouse, 7.5% lived with a non-spousal partner, and 14.4% lived alone. This leaves a substantially smaller proportion of adults living outside a paired union (70.7% in 1967 vs. 58.9% in 2015, a difference of 11.8 percentage points).

Much of this change has produced a rise in adults living alone, which doubled from 7.6% of households in 1967 to 14.4% in 2015.

The remaining adult population appears to have shifted to alternative cohabitation arrangements with non-partners. Other living arrangements, like living with other relatives (9.8% in 1967 to 12.1% in 2015) or non-relatives (1.3% to 3.6%) rose, but the incidence of living with one’s parents is roughly the same as it was decades ago (11% in 2015 vs. 10.6% in 1967)

Do these changes have financial consequences?  There are many indications that the answer is yes.  Marital status appears to have a significant impact on households’ incomes and net worth.  In my forthcoming book, I argue that being in a paired union sways a family’s ability to stay in the middle class.  The consequences of being single while having children seem particularly strong, because children require considerable investments of labor that either have to be met by foregoing work or using commercial alternatives.

This does not necessarily imply that staying in a first marriage is critical.  Many of these benefits may exist in unmarried cohabitants or recombined families (in which previously divorced adults recombine into a new paired union household).  They may also exist in other multiadult household arrangements, like living with a sibling or roommate.  These questions will be examined in future posts.


  1. Census Bureau (2015) “Table AD-3. Living arrangements of adults 18 and over, 1967 to present” Data table from Census Bureau.http://www.census.gov/hhes/families/data/adults.html

Cheap Debt

Debt has become cheaper since the 1980s

Over the past several decdes, household debts have risen considerably over the past several decades. Even though households carry more debt, they don’t spend considerably more in debt repayments. Debt is cheap.

How cheap is debt? The figure below depicts US lending rates since 1960. Data come from the World Bank.1

Download

 

Debt was quite cheap in the early-1960s, with lending rates that stood around 4.5%. Beginning in the late-1960s, the cost of debt started to rise. By the 1970s, lending rates had roughly doubled during a period in which general prices were rising quickly and the financial system had trouble delivering credit to those who wanted it. Borrowing troubles eventually became a point of contention in US politics, which ultimately culminated in major changes to credit markets under the Reagan Administration.  Lending rates peaked at nearly 19% in 1981, a period in which the Federal Reserve’s actions to staunch inflation caused a major tightening in credit markets. Since 1981, lending rates appear to have been in steady decline, before reaching very low rates after the 2009 crisis.

 

  1. World Bank (2015) World Development Indicators Data downloaded June 2015 at http://data.worldbank.org/data-catalog/world-development-indicators

Download the raw data and Markup file here

Median Incomes across US States

Across most US states, median incomes have stagnated since the mid-1980s, but some states have fared better than others.

Across most US states, median incomes have stagnated since the mid-1980s, but some states have fared better than others.  Median incomes have grown considerably in North Dakota, but fallen in Alaska.

Where does your favorite state rate?

Rising Life Expectancy

Life expectancy rose markedly during the 20th century

The average American born in 1900 could expect to live less than 50 years. Today’s US life expectancy is roughly thirty years longer, and continues to rise. Why has life expectancy risen so much over time?

The figure below describes changes in US life expectancy over the 20th century for men and women. Data come from Noymer and Garenne.1

US Historical Life Expectancy

 

Life expectancy rose fastest in the early part of the 20th century. This represents a continuation of rising longevity over the late-19th century.2At the outset of the century, diseases like diarrhea, tuberculosis, pneumonia or influenza caused many more premature deaths. Infants and children were far more likely to die, and much of these life expectancy gains were the result of more people making it to adulthood. Adults could expect to die at a younger age as well, but the difference was less stark. Life expectancy rose as the result of several developments, like the development of clean water systems, vaccinations, better housing stocks, antibiotics, better food yields and more stringent food regulation (e.g., making it illegal to sell spoiled food).3

Over time, the pace of life expectancy slowed. Falling infant and child mortality rates helped fuel the more rapid rise in life expectancy in earlier decades. Arguably, this was lower hanging fruit. With the passage of time, longer life spans were a matter of delaying death among the elderly. Presumably, there are natural limits to the amount of time that humans can live, though it is uncertain how close we are to those limits today.


  1. Andrew Noymer and Michel Garenne (2000) “The 1918 Influenza Epidemic’s Effects on Sex Differentials in Mortality in the United States”Population and Development Review, 26(3): 565 – 581. Figures from 1918 show an implausible, one-year drop of over ten years, and are recoded as missing. Data available for download athttp://demog.berkeley.edu/~andrew/1918/figure2.html
  2. J. David Hacker (2010) “Decennial Life Tables for the White Population of the United States, 1790–1900” Historical Methods 43(2): 45-79.
  3. David Cutler and Grant Miller (2005) “The role of public health improvements in health advances: The twentieth-century United States”Demography, 42(1): 1-22; Laura Helmuth (2013) “Why are You Not Dead Yet?” Salon, Septemberhttp://www.slate.com/articles/health_and_science/science_of_longevity/2013/09/life_expectancy_history_public_health_and_medical_advances_that_lead_to.2.html

Download the raw data and Markdown file here

Workers Haven't Received Raises in Decades

American real hourly wages haven’t moved for decades.

The hourly wage rate attempts to measure how much workers earn for each hour of work. It is calculated by estimating the total wage payments, divided by the total number of hours worked, economy-wide. In 2014, the average American worker earned about $20.60 for each hour worked, compared to $2.53 in 1964.1

At first glance, this suggests that Americans are better-paid than they were fifty years ago. However, these are nominal figures, which do not account for changing consumer prices. An hourly wage of $2.53 went much further in 1964, when the median home sold for about $18 thousand2, a one-year, 52-issue subscription to Life magazine cost $5, and a gallon of gas cost 30 cents.3

TO get a sense of how well workers are paid today, we need to adjust wages for inflation, which renders an interesting view of wage growth over the past several decades. The figure below, which reproduces a graph from the Pew Research Center’s Drew Desilver4, shows how both nominal and real wages’ growth since 1964.

real wage growth

Although hourly wages have been rising continuously in nominal terms, they have barely moved in inflation-adjusted terms. Between the 1970s and mid-1990s, hourly wages actually fell. Household incomes were rising during this period, but mainly because people worked more hours. A key element of this trend involved more labor force participation: dual-income households became more common, and homemaking became less common. Since the mid-1990s, hourly wages have risen. However, incomes and wages have generally stagnated. Part of what may be happening is that, while workers were paid more per hour of work, they’ve had fewer work hours.

At the end of the day, a lot of this is splitting hairs. In inflation-adjusted terms, hourly wages have barely moved for 50 years.


  1. Bureau of Labor Statistics (2015) “Employment, Hours, and Earnings from the Current Employment Statistics survey (National)” Series ID: CES0500000008 http://data.bls.gov/
  2. US Census Bureau (n.d.) “Median and Average Sales Prices of New Homes Sold in United States”http://www.census.gov/const/uspricemon.pdf
  3. Mary Braswell (2013) “Looking back at life in 1914, 1939, 1964 and 1989” Albany Herald December 26http://www.albanyherald.com/news/2013/dec/28/looking-back-at-life-in-1914-1939-1964-and-1989/
  4. Drew Desilver (2014) “For most workers, real wages have barely budged for decades” Factank Pew Research Center. October 9http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/

Download the raw data and Markup file here

More Debt Does Not Necessarily Mean Bigger Debt Service Obligations

Despite the rise in household indebtedness, cheap and easy debt has meant that the cost of sustaining these debts has not exploded.

Many analysts voice concern about the weight of indebtedness on household finances. Over the past several decades, household debt has risen considerably. In 1950, household debt stocks were 24% of GDP.1 That means that the estimated value of all of the debt owed by US households was roughly one quarter the estimated value of everything produced in the economy. By 1980, it was 45%. By 2000, it was 65%. By 2014, household debt was 95% of GDP – it quadrupled in proportion to national economic production. In the aggregate, households carry bigger debts than they did sixty years ago.

One might infer that households are under greater financial pressure to service these debts. If people are getting bigger mortgages, carrying more credit card debt, more education debt, and so on, wouldn’t they have bigger principal repayments and bigger interest expenditures? Interest and principal payments are collectively described as debt service payments.

That does not appear to be the case. The figure below depicts two data series. The first is the household Debt Service Ratio (DSR), which is the ratio of required households’ debt service payments to their disposable (post-tax) income. The second is the Financial Obligations Ratio (FOR) is a broader measure of households’ financial obligations, and includes debt service, rent payments, auto lease payments, homewoners insurance, and property taxes.

DSO

Households’ debt service ratio did rise between 1980 and 2007, but the rate of change is very modest. In 1980, the debt service ratio was 10.6%, and it peaked in 12.77% in third quarter of 2008. The overall size of household debt stock nearly doubled, but debt service obligations rise by about 20%. Concretely, this suggests that a fairly typical household – for example, one with a disposable income of $50,000, paid $5,300 in debt service obligations at 1980 rates and $6,385 at peak 2008 rates. This translates into about a $90 difference per month. And much of this increase debt service involves repayment of mortgages, which is partly a form of investment.

Why did the burden of servicing debts seem to rise so much more modestly than household debt? In part, it is a product of cheap debt. Credit is less expensive and more abundant today than in 1980. The market for non-traditional mortgages (for example, low-downpayment or adjustable rate mortgages) has developed considerably, and now lends money to people who might not otherwise be able to buy a home. Credit cards are very easy to acquire. The pay day loan industry has grown considerably.

The figure suggests that, if anything, this rise and debt has had a rather modest effect on households’ day-to-day cash flows. Although households are much more in debt, their debt is cheap and plentiful. Cheap, plentiful debt has also been in abundance during the Great Recession and its aftermath, and households have increasingly sought to pay down their debts. All of this has resulted in household debt falling back to the low range of where it stood in the 1980s. Overall, debt service obligations do not seem to be very volatile.

A similar story could be told with the Financial Obligations Ratio. One can really squint at the above figure to discern some very modest growth in household financial obligations between 1980 and 2007. However, it is a substantively mild rise, and it has fallen with debt service obligations since 2008.

The moral of the story? Although household debt is very high, this book has not dramatically affected households’ cash flows. Household finances are not being choked by debt service obligations. The cost of servicing debt has been reasonably stable within a confined range of about 15% to 18%. This is not an earth shattering growth in financial obligations. If debt has some kind of systematic negative effect on household finances, this effect is not manifesting itself as growing debt repayments, relative to incomes.


  1. Federal Reserve Board (2014) “CMDEBT_GDP” Data series from Federal REserve Economic Data set. Accessed in Spring 2014.http://research.stlouisfed.org/fred2

Download the raw data and Markup file

The Engines of Economic Growth

A look at different sectors’ contribution to economic growth.

We know that economic growth has been lackluster for several years. Why is this happening? One way to address the question is to look at different economic sectors’ contribution to overall growth. The figure below looks at overall economic growth since 1950 (top panel), and four sectors’ contribution to that growth:

  • Private consumption, which includes purchase of services and consumer goods by non-government enterprises
  • Private investment, which includes non-government actors’ purchases of equipment, buildings, intellectual property, and residential homes
  • Net Exports, which is total exports minus imports
  • Government Consumption and Investment, federal, state and local government’s consumption and investment.

Data come from the Bureau of Economic Analysis.1

contrbGDPgrowth

 

Some points of note:

Consumption-Driven Economy. Economic growth is primarily driven by consumption spending by both households and businesses. Until the 2008 crisis, private consumption contributed between two and three percentage points of GDP growth every year. Since 2008, mean private consumption has been about one percentage point lower than the historical norm. Our present economic slowdown is substantially driven by the fact that people and businesses are not consuming as much as they did earlier.

Private Investment Low for Years. The present economic slowdown is also partly attributable to the fact that private investment is lower. People aren’t buying as much equipment or building as many buildings as they had in past decades. Interestingly, private investment has been generally low for the better part of the past 15 years. This dip in private investment preceded the Great Recession.

This low investment level is noteworthy, as many of the pre-crisis 21st century’s tax cuts and deregulation were sold to the public as a means of stimulating prosperity by inducing more investment. Investment was a much more important engine of prosperity in the 1990s, possibly due to investments in IT equipment (equipment purchases surged from 1993-2000). By the 2000s, private investment dropped substantially, despite the fact that economic policies had pressed tax cuts, financial deregulation, and other policies that were sold as spurring the economy by promoting investment.

Trade a Minior Contributor. Net exports have generally made only minor contributions to overall economic growth. It has not been an engine of economic prosperity over the entire post-WWII era.

The Effects of Austerity. This series was particularly interesting. During the very prosperous 1950s and 1960s, public sector consumption and investment made large contributions to economic growth, providing just under one percentage point of economic growth. Government spending fell during the 1970s, alongside general economic growth. After the crisis, government spending has on average been a source of stagnation – it has lowered GDP growth. This illustrates the argument that austerity is hurting the economic recovery.

The table below presents mean percentage point contributions to overall GDP growth by decade, across sectors, from 1950 to 2014:

Sectoral Contribution to GDP Growth, in Percentage Points, 1950 – 2014

Sector 1950s 1960s 1970s 1980s 1990s 2000-7 2008+
GDP Growth 4.1% 4.3% 3.2% 3.4% 3.5% 2.5% 1.1%
Private Consumption 2.2% 2.6% 2.0% 2.2% 2.4% 2.0% 0.9%
Private Investment 0.8% 0.8% 0.8% 0.7% 1.2% 0.3% 0.02%
Net Exports -0.08% 0.04% 0.3% -0.2% 0.4% -0.4% 0.3%
Government Consumption & Investment 1.1% 0.9% 0.2% 0.7% 0.2% 0.4% -0.02%

  1. Bureau of Economic Analysis (2015) “Table 1.1.2. Contributions to Percent Change in Real Gross Domestic Product” Data table downloaded June 7, 2015 http://www.bea.gov/itable/

Download the raw data and Markup file here

Long-Term Trends in Corporate Profits

Corporate profits fell for decades, but have bounced back since 2000.

Over most of the late-20th century, corporate profits fell in proportion to the overall economy, but it has roared back since 2000. One can interpret these changes in several ways.

Figure 1 (below) describes changes in the ratio of US corporate profits to GDP from 1945 to 2013. Data are from the Federal Reserve:1

US Corporate Profits

 

The graph suggests that corporate profits fell steadily between World War II and the mid-1990s, but rebounded after 2000. Concretely, this means that corporations collectively took in progressively less operational profit between the end of World War II until 2001, relative to the overall value of what the economy produces. After 2001, corporate profits grew in proportion to overall economic activity. How might we interpret this trend?

One possible interpretation focuses on distributional struggles between corporations and other societal actors. During the 1940s through 1970s, economic policies tended to be more progressively redistributive. They taxes and regulated corporations more heavily, and were quicker to implement policies that redistributed wealth or bestowed bargaining power to workers and consumers. These policies are said to have been widely dismantled under neoliberalism and globalization of the 1980s through 2000s, which has led corporate profits to rise. This story line involves corporations losing a distributional battle with workers and consumers for decades, then an abrupt reversal of fortunes to our present situation in which they are now winning this distributional battle.

Other perspectives interpret these changes as a product of businesses working less well under postwar “big government” capitalism, then turning around to do great business after the Reagan Revolution and globalization. This narrative stresses the ways in which government taxes, spending, or regulations cause businesses and society to waste resources, suppress innovation, or focus on the ways in which lobbying for political favor becomes more important than being economically competitive. Here, the focus is on profit as a byproduct of fielding successful businesses, rather than a matter of redistribution. Through this view, one might infer that neoliberalism and globalization slowed American business’ precipitous fall into decrepitude, and ultimately set it on a path towards renewed profitability.

One explanation that interests me involves the erosion of America’s postwar position of international economic dominance. Most highly developed countries emerged from World War II greatly weakened, while the US economy and society remained largely unscathed, well-resourced, and ready to capitalize on the great technological advancements of the wartime era. American businesses did not face the strong foreign competition to which they are now subject, and America was well-positioned to dictated very favorable international economic terms with other countries. As the other Western countries recovered from the war, and became better able to assert themselves in the market and in international affairs, America’s competitive advantages eroded and its businesses found it harder to earn big. This explanation does not discuss why profits recovered after 2000.

Other explanations are possible. Whatever the reason, it seems clear that corporate profit shrank in proportion to the overall economy up until the 1980s or 1990s, and has slowly but steadily grown since then.


  1. Federal Reserve Board (2014) Series A464RC1A027NBEA and FYGDP from Federal Reserve Economic Data set. Accessed in Spring 2015. http://research.stlouisfed.org/fred2

Download the raw data and Markdown file here

Housing Prices Since 1975

A look at housing prices in the US

Housing is generally the biggest asset on people’s balance sheets. Those with money tend to own homes, and home owners are generally deeply invested in their houses. For many years, housing prices rose, and these price rises made major contributions to the middle and upper-middle class’s asset base.

Those who owned houses during this boom benefited with increased wealth, but the rise in home prices also made it more expensive to buy a home. Up until the 2008 crash, many of the families who were not able to get in on the housing market “at the ground floor” made their way in by using a range of new debt products that a booming financial market was offering. It became easier to purchase a home with no downpayment. People could get bigger mortgages if they agreed to gamble on adjustible-rate mortgages. Eventually, some people didn’t even need documentation to get a loan. Once credit got that loose, it was only a matter of time before some major problem emerged.

When the housing bubble eventually burst in 2008, both lenders and consumers became more reluctant to buy new homes. The market dried up and housing prices crashed. Presumably, this crash meant that more people could get into the housing market, although it might have ultimately hurt the wealth accumulation of home owners.

How much did housing prices fall? How much affordable did houses become? How much damage did home owners have to absorb? One way to address these questions is to look at changes in housing affordability over time. The figure below describes changes in the Case-Shiller price index.1 The index measures home prices in 20 metropolitan areas, and expresses itself as a relative price level to that which prevailed in January 2000.2

caseshiller

 

In 2014, housing prices were about 65% higher than in 2000. This represents a modest recovery of about 19% from the trough in housing prices in 2011. However, it still represents 10% lower prices than those that prevailed at the peak of the housing boom in 2006. So housing prices have not recovered. Homeowners who bought near the peak of the last bubble are still in the hole, and those who were counting on home values returning to their 2006 levels are still behind in their financial plans.

The graph also imparts a sense of the 2007-9 recession’s impact on home prices. Home prices fell by about 24% from the 2006 peak to the 2011 trough. That is a considerable amount of lost wealth, particularly because homeowners are generally deeply invested in their homes.

Regardless of the ups and downs of recent years, housing is far more expensive than it was thirty years ago. Prices in 2014 have more than quintupled over the past forty years. Meanwhile, incomes have not.


  1. Data from Federal Reserve Board (2015) “S&P/Case-Shiller U.S. National Home Price Index©” Data series CSUSHPISA downloaded June 9, 2015. https://research.stlouisfed.org/fred2/series/CSUSHPISA
  2. S&P Dow Jones Indices (2015) S&P/Case-Shiller Home Price Indices: Methodology Methodological report.http://www.spindices.com/documents/methodologies/methodology-sp-cs-home-price-indices.pdf?force_download=true

Download the raw data and Markup file here

Long-Run Trends in the Poverty Rate

What can we glean from long-term changes in the poverty rate?

In 2013, about 14.5% of society was officially “poor”, with incomes that fall below the federal government’s official poverty line. This represents an increase from the early 2000s, when only about 11% – 13% of Americans registered as being poor.

Interestingly, today’s povery rates seem well within the normal boundaries established since the late-1960s. Over the past forty-plus years, poverty has bounced within an 11% to 15% range, going up during bad times and falling during good ones.

Long-term poverty patterns suggests that we have not made sustained progress in eradicating poverty. The figure below describes the poverty rate since 1959. Data is from the Census Bureau.1

us-poverty-over-time

 

Poverty fell considerably during the early-1960s, and reached its present range by 1966. Since then, we have not experienced any secular decline in the poverty rate.

Conservative critics of the welfare state often cite this fact as evidence that the policies established under Lyndon Johnson’s “War on Poverty” failed to achieve their goals. The signature policies of that “War”, the expansion of Social Security in 1964, the Food Stamp Act of 1964, the Economic Opportunity Act of 1965, and the Elementary and Secondary Education Act of 1965, marked substantial expansions of the social safety net.2 Critics argue that poverty stopped falling soon after these implementations, and infer that these programs were not effective. Moreover, one might note that median wages began to falter only a few years later, and argue that the expansion of the welfare state ultimately hurt people’s ability to secure jobs and earn money.

I’m more skeptical about this view. First, it is not altogether clear that domestic welfare policy was the primary determinant shaping hosueholds’ economic fortunes. One can read this graph and infer that poverty declined more or less steadily until 1973, right after the oubreak of the Stagflation Crisis, a range of systemic economic and financial problems that are just as much rooted in a changing geopolitical context than anything that was happening domestically.3 There is also the prospect that the dynamism of mid-20th century’s industry-led economy was nearing exhaustion.4 The country would soon also confront a range of demographic changes, like the Baby Boomers’ coming of age, the rise of divorce, and other assorted social changes that could have ultimately driven households into poverty.

More deeply, it is worth keeping in mind what is meant by “poor.” The official poverty line is the inflation-adjusted cost of what the USDA determined to be the cost of a minimal food diet in 1963. Those with incomes above that line are not poor, and those below are poor. This is a very crude measure of poverty, which to my mind borders on meaninglessness. In effect, a stagnating poverty rate does not imply that the number of poor people stagnated. Rather, it implies that gross household incomes roughly paced the real cost of basic food in 1963.

A different possibility is that these War on Poverty programs have prevented poverty (real or official) from exploding. This is particularly true of America’s burgeoninng elderly population, many more of whom would certainly be impoverished without their Social Security checks. Without public health care programs, like Medicaid, Medicare or CHIP, many more people would have much more trouble accessing medical care. Subsidized health insurance, subsidized school lunches, and other facets of the welfare state do not appear in household balance sheets as income, and so they would probably not affect poverty rates. Still, people’s overall wellbeing is likely helped by these programs.

Overall, what we can glean from long-term changes in the poverty rate is limited. Still, the graph is tought-provoking, and unpackaging what is happening here might help shed light on whether or not the welfare state actually helps the poor. I would wager it does, but the debate will likely continue for a long time.


  1. US Census Bureau (2014) “Table 2. Poverty Status of People by Family Relationship, Race, and Hispanic Origin: 1959 to 2013” Data table downloaded from http://www.census.gov/hhes/www/poverty/data/historical/people.html
  2. For an accessible overview, see Dylan Matthews (2014) “Everything you need to know about the war on poverty” Blog entry at Wonkblogfrom the Washington Post, January 8 http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/08/everything-you-need-to-know-about-the-war-on-poverty/
  3. See Fred Block (1977) The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present University of Calfornia Press
  4. See Daniel Bell (1977) The Coming of Post-Industrial Society: A Venture in Social Forecasting Basic Books.