How The American Dream Became Unaffordable For Americans

Between $75,000 and $100,000 a year is what most Americans consider middle class. However, the average salary of an American worker in the fourth quarter of 2023 was $59,384. All across the U.S., families are facing unprecedented challenges. The cost of food, electricity, and rent have all been steadily increasing over the past 12 months. There are fewer adults living in middle-class households across the country. From 1979 to 2024, productivity in the country increased by 80.9%, while hourly wages experienced only a 29.4% growth. It appears workers are getting paid more, but inflation may have them feeling like they're getting paid less. Over the past five years, salaries have continued to lag behind inflation in almost all fields of work. So why have middle-class salaries stagnated in recent years? And how does this affect all Americans? The gap between the rise in the cost of living and wage growth has become a distinctive feature of the U.S. economy. In June 2024, it was revealed that two-thirds of middle-income households felt their income was not enough to cover living expenses. But a fundamental aspect affecting American wages is economic policy. We look after the overall stability of the financial system, and we have tools to do that. The Federal Reserve focuses on achieving maximum employment and price stability, using indicators like the natural unemployment rate, which has historically fluctuated between 4.5% and 5.5%. From 1949 to 1979, the real unemployment rate was cumulatively 15.3% lower than the natural unemployment rate. In contrast, from 1979 to 2017, the real unemployment rate has been 35.7% above this index. This has negatively impacted wages, which tend to grow more rapidly during periods of low unemployment. Side hustles aren't just a way to make a little extra cash on the side anymore. Yes, Oxfam's Kendall Green shows us it's a new study that finds an alarming number of people are relying on them just to make ends meet. According to the Economic Policy Institute, a one-percentage-point reduction in the unemployment rate can lead to wage growth of between 0.4% and 0.9% for workers. Thus, the high unemployment of recent decades has weakened the purchasing power of the middle class. Another factor contributing to the lack of income growth for Americans is the decline in geographic mobility. Historically, workers' ability to relocate in search of better job opportunities has been crucial for wage growth. Child born in poverty in Atlanta or Charlotte has roughly a 4% chance of rising to the top fifth of income earners, while odds of a similar climb for a child born in Salt Lake City or San Francisco are over 11%. However, the proportion of Americans who move has drastically fallen from over 20% in 1948 to just 8.7% in 2022. This shift has been even more pronounced in recent years, where only 1.6% of job seekers relocated to find new jobs in 2023. The location of jobs also plays a crucial role in wage growth. Despite the rise of remote work during the pandemic, salaries in remote and hybrid roles have not significantly increased compared to full-time office jobs. Additionally, housing costs have reached record levels with a median price of $426,900 for existing homes in June 2024, further hindering middle class mobility. Rent has increased by more than 30%, more than two thirds of the 200 largest metro areas in the US. The significant disparity in the salaries required to be considered middle class across different states also affects Americans. For example, an annual income of up to $200,000 is needed in states like California and New Jersey to be considered middle class, while in states like Mississippi and West Virginia, this figure is significantly lower. Occupational licensing has limited job opportunities and wage growth. It is estimated that between one fifth and one third of workers in the United States need a license to practice their profession. In general, jobs in states that require licenses earn about 8% more than those in states that do not. While licensing may seem necessary for certain professions, many studies indicate that there are no significant quality differences in outcomes between states that require licenses and those that do not. Globalization has been another significant factor putting pressure on the wages of the American middle class. Trade with lower wage nations has put pressure on middle class jobs as many companies move their operations to countries with lower production costs. Our hemisphere has been invaded by China and they are now the number one trading partner in the region. Many of the 500 largest industrial corporations in the United States have shifted a part of their manufacturing operations from China to Mexico. Between 1995 and 2013, this trade reduced wages for workers without a college degree by approximately 5.6%. However, the impact of globalization on wage inequality has been debated. Some research suggests that the effect has been minimal while others argue that trade policies have benefited corporations rather than protecting middle class workers. The decline in union membership in the United States has created an obstacle to wage growth. For decades, union membership has been on the decline. The early half of the 20th century saw a rapid rise in labor union membership. But today, only about one eighth of American workers belong to them. In 1983, approximately one in five Americans belong to a union. By 2023, that figure had dropped to one in 10. Unionized workers earn about 15.9% more than their non-unionized counterparts, demonstrating the power unions have to improve wage conditions. Fiscal and labor policies have a direct impact on wage growth. Both political parties in the United States recognize the economic pressures faced by families, although their approaches to addressing these issues differ. The Biden administration has focused on strengthening domestic manufacturing and union protections, while the Trump administration promoted tariff policies to protect the US economy from globalization. The Tax Cuts and Jobs Act of 2017, which reduced the corporate tax rate, has sparked debate over its effectiveness in increasing wages. Some studies suggest that this reduction led to an average increase of $750 in annual wages, while others argue that these benefits The decline of the middle class in recent decades has been notable. In 1971, the middle class represented 61% of the US population. By 2021, that figure had dropped to 50%. Politicians on both sides of the aisle talk about supporting the middle class, but in the US, that group is shrinking. The US middle class is shrinking, and middle incomes are falling dangerously behind. As living costs have risen, wages have not kept pace. Since 1981, housing costs have increased by 300%, while health and food costs have nearly doubled. The decline in geographic mobility, the pressure of globalization, and the drop in unionization have contributed to low- and middle-income families struggling to make ends meet. To mitigate the growing decline of the middle class, it is essential to implement public policies that not only promote economic growth, but also ensure that the benefits of such growth are reflected in low- and middle-income families. The development and well-being of the economy are crucial not only for middle-class families, but for all Americans in general.