A Stroll Through the Income Spectrum
The link between income and standard of living used to be simple: People who made more money lived better. They drove a Buick, not a Chevy. They moved from an upstairs flat to a four-bedroom split-level. They fished for muskies in Canada instead of bluegills in the local reservoir. Today, however, it’s not so simple.
My curiosity about this phenomenon began a decade ago with a book called Years of Poverty, Years of Plenty by economist Greg Duncan and colleagues. Using data from an important survey that followed the same group of Americans from 1969-78, they portrayed a country where people’s income rose and fell precipitously, lifting them above poverty for a few years then plunging them back in again. This, the authors informed us, was evidence of the huge role of luck and environment in life.
I suddenly realized I could have been part of their evidence: After making a good living in 1969 and ‘70, I went to graduate school and fell beneath the poverty line for a few years; then from 1973-1978 I zoomed from the poorest fifth in income to the next-to-the-top fifth. But I hadn’t ever really been poor, and my standard of living didn’t zoom in tandem with my increased income.
I asked Greg Duncan if we could select a handful of subjects who showed dramatic income changes, then go down to the storage room where they keep the interview forms with the interviewers’ handwritten comments and try to discover what was happening. Greg cheerfully consented.
With small samples you can’t estimate overall proportions precisely, but if you pick three marbles at random out of a jar of marbles and all three are purple, you can be sure the jar has lots of purple marbles. So it was with our small sample. The cases consistently revealed marked discrepancies between the story told by income and the story told by standard of living.
The elderly were in a world of their own. Their cash income can be so out of whack with their standard of living that it is close to meaningless. Example: A couple in their fifties were making about $60,000 a year (all the figures I use are expressed in 1992 dollars). Then in the mid-1970s, the husband died. In two years, the widow’s income went from $60,000 to less than $5,000. How did she survive? Sell the family home? Move in with one of her children?
Not exactly. She had a college degree and had formerly worked as an accountant, making $33,000 as recently as 1970. She worked for a time after her husband died, then stopped. As of 1980, she listed no disability, received no welfare or Social Security. Only 55 years old, she listed herself not as "unemployed," but as "retired." She continued to live in the same paid-off family home she had lived in with her husband. As far as anyone can tell, this woman with her $5,000 income was living much the same life she had lived with $60,000.
The working-aged poor could be as hard to figure as the elderly. It’s not just graduate students who show up below the poverty line but are actually living reasonably well. For instance, there was the husband with a grade-school education who worked full time while his wife with an eighth-grade education worked 1,200 hours. Together they earned only $8,600 when the survey began. They were under the poverty line for five of the next ten years and barely out of poverty in three others. They seemed to be candidates for Clinton administration poster family: people without high-tech skills, playing by the rules but condemned to poverty no matter how hard they work.
But I doubt Bill Clinton would want them as examples of what’s wrong with America. In 1980, while officially below the poverty line, they operated three vehicles, including two trucks that the husband used as part of his own business. The couple owned their five-room house free and clear, and the interviewer gave it the highest possible ratings for neatness and condition. The data weren’t complete enough for us to figure out exactly what was going on. Maybe this fellow wasn’t telling the interviewer about every single penny he earned. Or maybe the income he reported just didn’t translate into poverty as we ordinarily visualize it.
These anecdotes from the survey archives reinforced my belief that real poverty bears only a modest relationship to the poverty-income line. I didn’t have time to pursue the issue more systematically, though, and no one at the survey group had any interest in doing so.
Since then, I have had a chance to collect informal data closer to home in the western Maryland village where I moved in 1989. My neighbors are farmers, white-collar workers, craftsmen, and unskilled laborers, along with a smattering, in roughly equal numbers, of welfare families and formerly urban professionals like me. I have checked my village’s income distribution in the 1990 census and compared it with the way my neighbors live—what their houses are like, what they drive, where they go on vacation. And I have observed that the standard of living of many of my neighbors is easily as high or higher than that of many of my urban friends with three or four times the income.
How can that be? I am convinced that official income is becoming a fairly weak indicator of well-being in the United States. The more relevant divisions, increasingly, come in the areas of standard of living and status. And, more and more, these are linked only loosely to income. Here is my current approximation of how income, status, and standard of living now play out:
The High-Income Struggler. Much of the top fifth that is supposedly doing so well in this country consists of the High-Income Struggler. David Brooks recently wrote about those who suffer from what he calls Status-Income Disequilibrium, or SID. SID is what happens when your professional status is much higher than your income. In one example, a senior editor of Time spends his work day deciding how the nation will think about the week’s events, but goes home by subway because he can’t afford cabs every day, then spends his evening trying to exterminate the cockroaches in his cramped New York apartment.
The population I call High-Income Struggler is not limited to people with SID. It refers more generally to people with high-but-hardly-stratospheric incomes who live in America’s big cities. In 1992, being in the top fifth meant having a household income of $58,200 or more. A High-Income Struggler is well into this group. Let’s say his family brought in $200,000 a year, all told. He lives in a fashionable part of town but is in hock up to his eyeballs because his apartment or house cost $500,000. But it is no mansion. In fact, it may be smaller and less comfortable than his parents’ house back in Topeka—and Dad never made more than $40,000 in his best year.
Close to a half of the Struggler’s income goes to federal, state, and city taxes, right off the top. A big chunk of what’s left goes for the mortgage, and another big chunk pays for the kids’ tuition or day care. The net result is that, despite appearances, the standard of living of many of America’s elite is not particularly high. It is about as high as…
The Ordinary Working Stiff Who Doesn’t Live Downtown in a Big City. Maybe he is a skilled blue-collar factory worker, a cop, a salesman, a high school teacher, a store manager. The family takes home something in the middle fifth of incomes (in 1992 that covered households earning from $24,300 to $38,000), or in the next-to-the-top group ($38,000 to $58,200). He may live in the sort of development springing up everywhere outside cities, with long rows of large though monotonously similar townhouses. Maybe he lives in an older neighborhood of detached houses in a small town or city.
If we are talking about status, he is definitely downscale: The High-Income Struggler eyes the Working Stiff’s housing development from the Interstate and shudders at the idea of living there. But this is pure snobbery. The Working Stiff’s house and yard may well be bigger than the High-Income Struggler’s, and stocked with more amenities. If physical standard of living is the issue, it is difficult to find indicators of comfort or luxury that put the High-Income Struggler better off than the Working Stiff. Schools? One of the best-kept secrets about public schools is that, outside the major cities, they’re often just fine, and the Working Stiff doesn’t have to spend several thousand dollars per child of his after-tax income on annual tuition. Leisure time? Not only does the Working Stiff spend it doing things he enjoys, including travelling, eating out, and sports, but he actually has leisure time, which puts him one up on many High-Income Strugglers. The bottom line is that tens of millions of Americans in the second and third fifths of incomes have a higher standard of living than a large proportion of the Americans with incomes in the top fifth.
The Ordinary Working Stiff Who Does Live Downtown in a Big City. This guy has income in the middle or next-to-top fifth, but not much to show for it. He has an even more cramped apartment, in a less desirable neighborhood, than the High-Income Struggler. He pays high taxes, sends his children to lousy schools, and has little left over for anything but necessities. In status, he is respectable. In standard of living, he is close to poor.
The Closet Comfortable. Now we come to the lowest two fifths of the income distribution, about whom policy analysts, almost all of whom are in the top fifth, feel so embarrassed that it seems impossible for them to think straight. They know well that being in the top fifth is not all it’s cracked up to be, but to acknowledge that many low-income people live a decent life seems too much of a let-them-eat-cake attitude.
Yet if you want to see what the standard of living is for a substantial portion of the bottom two fifths of incomes (in 1992, $24,300 or less), drive ten or 15 miles out from mid-town and mosey around any working-class neighborhood. You will find large neighborhoods given over to a generic kind of small home with a living room, kitchen, two bedrooms, one bath, and maybe a finished basement. The rooms are small, but the house is comfortably furnished, the small lawn is mowed, and the flower beds are tended.
The Closet Comfortable go on vacations, entertain, have cable TVs. Sometimes you’ll see an RV in the driveway along with the car they drive to work. The TV shows they watch, the nature of their dinner parties, and the other ways they use their income and time are not what the higher-income populations would do, but once again beware of mixing status with standard of living. Measured in strict material terms, millions of people in the bottom two fifths—including some people with incomes that make them officially poor—live the modestly comfortable life I have described.
People with Enough Money Who Don’t Know How to Spend It. Now we come to the class so embarrassing to the policy analysts that I have seen not a single technical article that attempts to systematically describe its characteristics: People who have money, but whose standard of living is terrible.
You find them in the worst neighborhoods of big cities, the ones with apartments where the rats scrounge among the stacks of old fast-food cartons, the plumbing regularly backs up, and the drywall has holes kicked in it. You find them in the country, in houses with peeling paint and lawns littered with old cars. If you want evidence such a population exists, compare the surveys of income in low-income neighborhoods with surveys of actual spending in those same neighborhoods. Expenditures exceed reported income by startling amounts. Study the reports of the massive amount of underground cash income from drugs and crime in poor neighborhoods. If you want visual evidence, stand at the entrance to the local school and count the number of $100 sneakers and $300 jackets on the kids going past.
Clothes and cars may signal the availability of income, but the other amenities of life for such families—from living space to schools to personal safety to nutrition—can be awful. Some of these problems are beyond the family’s control. Others are caused by poor spending habits or personal behaviors that degrade the standard of living. As a result, many people whose incomes could make them Closet Comfortable or solid middle-class instead live lives that are authentically impoverished, though dotted by random accouterments of wealth.
The groups I’ve discussed above make a mockery of many assumed connections between income and standard of living. But of course there are other groups that accord with the traditional assumptions. These include The Truly Rich, who spend hundreds of thousands of dollars a year on whatever they desire, and represent less than one percent of the population. There are The Truly Prosperous, who earn around six figures per year, placing them well into the top fifth, yet don’t live in large cities. Their standard of living fits the popular image of affluent people in the top fifth. And of course there are The Truly Poor, who have incomes in one of the bottom two fifths, do not enjoy the low expenses associated with small-town living or owning a paid-for house, and who have a marginal standard of living or worse.
Put all these groups together, and you can see how difficult it is to rank people by standard of living. The Truly Rich live in their own world, standard-of-living-wise, but just below them, a mix of the Truly Prosperous, some High-Income Strugglers, some of the Working Stiffs (especially those in small towns and rural areas), and some of the Closet Comfortable (especially among the elderly) live pretty similar material lives despite their sharply different incomes. The confusion continues at the bottom of the ladder, where large numbers of People with Enough Money Who Don’t Know How to Spend It share the most degraded standards of living with The Truly Poor.
If anyone ever figures out how many people are in each of these groups, it will revolutionize the way we think about affluence, about poverty, and about the real inequality in American society—an inequality that has only moderately to do with income, and everything to do with culture, class, and behavior.
Charles Murray is the American Enterprise Institute’s Bradley Fellow.
