If you and your spouse both work, and if you aren’t reading this on your personal catamaran or in your swank Manhattan penthouse, then, chances are, you probably understand the concept of the two-income trap. And you might hear more about it in the coming months, because the person who coined the phrase is Democratic presidential candidate and Massachusetts Senator Elizabeth Warren — and she’ll almost certainly be talking about it.
The heart of Warren’s concept, is that, from the 1970s and onward, women increasingly entered the workforce, transforming most middle-class families into two income-households. But with that additional income came additional costs: Both parents working meant paying for childcare became a necessity. Plus, the cost of commuting to and from work each day doubled. Other costs outside the family’s control rose, too. The cost of housing as competition to get into the best public-school districts increased as did the cost of paying — and saving —for rising college tuition. Not only that, but if one parent got laid off, the inherent insurance policy of having an additional potential earner at home ready to step up to get work was now gone, because that other parent was already working, and, again, most of the gain of their additional income was now being gobbled up by these other costs. What made matters worse was that while all of this was happening, wages plateaued.
Simply put, the two-income trap explains that families with two working parents often live on the razor’s edge of financial solvency, one pink slip or medical emergency away from ruin.
Warren introduced this notion to the public with her 2002 book The Two-Income Trap: Why Middle Class Parents Are Going Broke, which she co-authored with her daughter, Amelia Warren Tyagi. And it’s just as prescient now, 15 years down the road, says Amy Glasmeier, a professor of economic geography and regional planning at MIT. The biggest cause of this problem, Glasmeier says, is that, for decades, wages have remained flat as costs of living have increased.
“I think people have been aware of their wages being stagnant since the middle of the 1970s, and it’s been that way since then,” Glasmeier says. “And it’s become more and more difficult as fewer and fewer jobs that pay living wages are created, and you just feel like it’s an uphill battle and you’re losing all the time.”
There are a variety of factors driving that wage-flattening: the exportation and automation of labor-intensive jobs, the increase in foreign-made goods, and the diversion of corporate profits from employees to shareholders. These are long-term trends that Warren identified in her book, and that Glasmeier was seeing back then, too. It’s why, also in 2004, she developed MIT’s Living Wage Calculator, a tool used by municipalities and companies to understand how much employees need to earn to sustain their households.
“We were working to warn policymakers that the consequences of economic turmoil were not going to solve themselves in the short-term, nor necessarily at all, because of the kinds of trauma that was causing the problem,” she says. “So we wanted them to realize that the cost of living wasn’t going to fall, even though people’s income had basically been destroyed.”
This may feel eerily relevant to you. But short of stumbling into some windfall to pad your savings and investments, you, like many families, may be up a creek if you or your spouse get canned — or sick — tomorrow.
“I would think that [what would happen] to the household, is that the person who lost their job needs to be able to get another job, but the loss of the income that might have covered child care, transportation, etc., that’s gone now,” Glasmeier says. “So that there’s an increased liability associated with an increased cost that’s not covered by the previous job held by someone.”
The very fear of this reality, even if it doesn’t come to fruition, harms both individuals and families, not to mention their employers.
“All of that is enormously debilitating, and one would think that it actually diminishes the potential of somebody to do a good job in a job, because the level of anxiety is so high,” Glasmeier says.
Glasmeier believes the solutions lie with corporations, and with the government.
“We do some things in the United States that just don’t make sense,” she says. “Not having publicly available child care; not recognizing the burden of cost associated with two adults working; not having paternity leave; not having maternity leave; not having a really effective health insurance that protects you from unexpected circumstances.”
Warren and Tyagi, in their book, outlined similar solutions, calling for increased regulation of high-interest lending; expanded health and disability insurance coverage; caps on tuition for public universities; universal preschool; subsidies for daycare; and tax credits for stay-at-home parents.
Warren continues to espouse similar solutions, and she outlines a plan to rebuild the middle class on her campaign site. She doesn’t use the ‘two-income trap’ phrase there, but it’s spirit is one of her bread-and-butter issues, and, as her campaign moves forward, you can bet she’ll discuss time and again how the economy is stacked against families — and how financially precarious life is for working parents today. But you probably already knew that.
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