When It Comes To Affordability Of Common Household Goods, Rich And Poor Are Both Getting Richer

by: Mark J. Perry

Retail Prices and the Time Cost of Household Appliances: 1959 vs. 1973 vs. 2013
Click to enlarge

AEI's Aparna Mathur wrote recently about "The Inequality Illusion", here are some key paragraphs:

Based on the Residential Energy Consumption Survey questions on household use of appliances such as microwaves, dishwashers, computers, printers and other data, we find is that the access of low-income Americans – those earning less than $20,000 in real 2009 dollars – to these devices that are part of the "good life" has increased. The percentage of low-income households with a computer rose to 47.7% from 19.8% in 2001. The percentage of low-income homes with six or more rooms (excluding bathrooms) rose to 30% from 21.9% over the same period. Similar increases can be documented for appliances like air-conditioners, dishwashers, microwaves, cell phones and other household items.

In general, we find that people at all income levels now have access to many more material possessions than they did in the 1980s. Moreover, there has been a narrowing of the gap between high and low-income classes in terms of ownership of these items. It is hard to argue against the improvement in the standard of living that has accompanied these trends. Hence, the standard narrative that rising income inequality has somehow hurt the middle and lower-income classes is not supported by data.

Whether the explanation for improvement in living standards lies in redistribution policies and the growth of the safety net, or technological improvements that allowed prices of electronics and other durable goods to drop, or real improvements in productivity and wages, the bottom line is: people are better off today than they were twenty or thirty years ago. Households are consuming more and the typical low-income household possesses many more appliances and gadgets that have traditionally been considered the preserve of the rich, than at any time in history. Judging by these criteria, inequality is much less of a predicament than most politicians would have you believe.

The table above shows retail prices for 11 common household appliances in 1959 and 1973 using prices from the Sears Christmas catalogs available here and current retail prices in 2013 from the Sears website. The "time cost" of those 11 appliances are also displayed above, and are measured in the "hours of work" at the average hourly manufacturing wage of $2.09 in 1959, $3.95 in 1973 and $19.30 today (BLS data here) that would have generated enough pre-tax income to purchase the eleven appliances in those three years.

The chart shows significant reductions in the real, time cost of those 11 basic household appliances since the late 1950s, on both an individual basis and in total. To purchase all 11 basic household appliances in 1959 would have required 885.6 hours of full-time work at the average manufacturing wage of $2.09 per hour, or equivalently 22.1 weeks (and 5.5 months) of full-time work. To purchase those same 11 appliances in 1973 would have only taken 575.2 hours of work (14.4 weeks or 3.6 months) at the hourly wage in that year of $3.95, which was a 35% reduction in the total "time cost" between 1959 and 1973. Today, the time cost of those 11 appliances is only 170.4 hours (4.3 weeks, or slightly longer than one month). Compared to 1973, that's a 70.4% reduction in the "time cost" of the appliances, and compared to 1959 it's an 81% reduction.

Stated differently, we could say that the typical factory worker in 1959 would have had to work from January 1 until the middle of June to earn enough (pre-tax) income to purchase those 11 appliances, a worker in 1973 would have had to work from the first of the year until the second week of April, and today's factory worker would only have to work until the end of January to earn income for those 11 appliances. Measured in days worked, a factory worker in 1959 would have had to work 89 additional days (which is also 17.8 extra weeks, and 4.5 extra months of work) compared to a worker today, to earn enough income to purchase the 11 appliances. And yet, we hear all the time from Paul Krugman and other progressives that the 1950s was the "golden era" of middle-class prosperity, even though a factory worker in that era would have had to work almost half of one entire year to have the same purchasing power for household appliances as today's factory worker generates with only about one month's worth of work!

Bottom Line: The comparison of the "time cost" of appliances over time above confirms what Aparna finds in her analysis – average (and low-income) Americans are much better off today than they were 20, 30, 40 or 50 years ago, thanks in large part to the significant reductions in the cost of common household appliances like refrigerators, washers and dryers, and TVs. The reasons for the significant reductions in the cost of appliances include innovation, technology improvements, supply chain efficiencies, increases in productivity and other market-driven efficiencies that drive prices lower and lower year by year, measured in what is most important: our time, and the amount of labor it takes to earn the money to purchase household appliances and other goods and services. As much as we hear about declines in median income, economic stagnation, the disappearance of the middle class, falling real wages, increasing income inequality, the data tell a much different story: The rich are getting richer and the poor are getting richer.