I have seen many articles claiming that the standard of living in the United States has decreased over the last 15-30 years. (I understand standard of living to be the ability of workers to buy the things they need or want, which is separate from real wages.) Is this true? If so, is it possible to determine what has caused the decrease?





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    This related question probably provides an answer: skeptics.stackexchange.com/questions/9836/… The data in the answer states that the poor have been getting richer, even after inflation is taken into consideration. Inflation is based on the price of goods. If you are making more after inflation, then you are able to buy a better standard of living then you used to be (not that you necessarily will). – Jonathon Dec 20 '15 at 20:35
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    @JonathonWisnoski My concern is that inflation as a metric doesn't necessarily reflect cost of living. The things the average worker needs to buy to survive have (supposedly) been getting more expensive at a rate substantially greater than inflation. – Stephen Collings Dec 20 '15 at 20:37
  • @StephenCollings - one problem with analysing something like this objectively is that "need to survive" is a very wishy washy metric. Are you including things like TVs and cell phones? How are you measuring food costs (e.g. do you include McDonalds markup?). How are you measuring living costs - are you just using average rents without looking at distribution? – user5341 Dec 21 '15 at 14:05
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    The chief complaint about US incomes I've heard is about inequality - as such, the average standard of living might tell a different story than, say, the median. – Dan Staley Dec 28 '15 at 19:14

If the average standard of living mentioned by the OP relates to purchasing power/adjusted for inflation which is the number of goods or services that can be purchased with a unit of currency, the answer is partly yes referring to Pew research findings that 22.41 dollars in 2014 had just about the same purchasing power as it did in 1973 with $4.03-an-hour rate.

But after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.

Several other factors such as the national debt, interest rates, inflation and consumer buying trends play a role in the decrease of purchasing power of the U.S. dollar. However inflation is distinct from cost of living changes as mentioned by Paul Heyne in 2002 as "Inflation is not a rise in the cost of living. Inflation is basically a fall in the value or purchasing power of money. Looking at it another way, we can say that inflation is a rise in the money price of goods. You may even, if you wish, speak of inflation as a rise in the money cost of living. But the key word is money."

Specifically, what cost $6,000 in 1960 would cost roughly $36,000 today—a six fold increase. But does that mean it is six times more difficult to buy things today compared with 1960? Of course not. It only costs six times as many “dollars.” The sacrifice required to buy this bundle of goods has not increased.

In 1960, this $6,000 market basket would have cost you about 2,800 hours of work. In 2000, it would have cost 1,700, or 39 percent fewer, hours (figured using average hourly compensation, which was only about $2 in 1960 but is approximately $19.50 today). What accounts for the fact that the cost of this market basket in terms of dollars is continually rising even though it is easier to acquire? The answer, simply enough, is that dollars are getting easier to come by because the central bank is creating more of them relative to the amount of things there are to buy. This is inflation.

Referring to Craig K. Elwell, the real purchasing power of the minimum wage has decreased substantially over time. The U.S. minimum wage not indexed to the actual price level had been legislatively increased from time to time to make up for the loss in its real value caused by inflation. As of 2013 dollar terms, the minimum wage has risen steadily from 25 cents to $7.25 an hour, where it has remained since its effective date of July 2009.

For most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades, regardless of whether the economy has been adding or subtracting jobs.

The rising price of imports relative to exports caused by a depreciation of the dollar reduces the purchasing power of U.S. consumers and businesses that purchase the imports. The American Institute for Economic Research Cost-of-Living Guide in 2009 states, "No matter what the politicians and monetary authorities say, the buying power of the dollar continues to decrease."

  • This answer provides lots of good information, but it would probably be improved by comparing not only average wage, but also average (or, better yet, median) income. Not to say that average wage isn't important, just that it doesn't capture the full picture. In particular, it fails to capture how differences in hours worked affect total income. Also, while it's true that the USD fell quite a bit relative to other currencies in 2009, that was a short-term trend with the recession. USD has gained significantly vs. GBP, EUR, CAD, AUD, JPY, etc. in more recent years. – reirab Jan 10 '17 at 19:59
  • For example, Here's a 10-year USD to EUR chart. – reirab Jan 10 '17 at 20:00
  • @reirab-thanks for this information but isnt this question related to standard of living rather than the USD value. Also even if the USD rate has increased has it been able to buy things that it was able to 10 years back which relates to actual buying power? – pericles316 Jan 11 '17 at 11:48
  • Standard of living is normally measured in median income. To compare between different places, PPP-adjustment is used and to compare over time, inflation adjustment is used (i.e. "real median income.") The nominal values don't work for direct comparisons, but inflation-adjusted ('real') PPP values do. You are correct that the buying power of the USD has decreased in the last 10 years due to inflation (which is the reason for comparing inflation-adjusted values.) I was just referring to the last part where you say the price of imports has increased. It's actually the opposite. – reirab Jan 11 '17 at 15:52

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