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The Two-Income Trap: Why Middle-Class Parents are Going Broke

Elizabeth Warren, Amelia Warren Tyagi · 5 HN comments
HN Books has aggregated all Hacker News stories and comments that mention "The Two-Income Trap: Why Middle-Class Parents are Going Broke" by Elizabeth Warren, Amelia Warren Tyagi.
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Amazon Summary
In this revolutionary exposé, Harvard Law School bankruptcy expert Elizabeth Warren and financial consultant Amelia Tyagi show that today's middle-class parents are increasingly trapped by financial meltdowns. Astonishingly, sending mothers to work has made families more vulnerable to financial disaster than ever before. Today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but has 25% less discretionary income to cover living costs. This is "the rare financial book that sidesteps accusations of individual wastefulness to focus on institutional changes," raved the Boston Globe. Warren and Tyagi reveal how the ferocious bidding war for housing and education has silently engulfed America's suburbs, driving up the cost of keeping families in the middle class. The authors show why the usual remedies-child-support enforcement, subsidized daycare, and higher salaries for women-won't solve the problem. But as the Wall Street Journal observed, "The book is brimming with proposed solutions to the nail-biting anxiety that the middle class finds itself in: subsidized day care, school vouchers, new bank regulation, among other measures." From Senator Edward M. Kennedy to Dr. Phil to Bill Moyers, The Two-Income Trap has created a sensation among economists, politicians, and families-all those who care about America's middle-class crisis.
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See this Liz Warren book:

https://www.amazon.com/Two-Income-Trap-Middle-Class-Parents-...

Henry Ford realized that the automobile was not going to change the world unless auto workers were so productive that they could easily afford the cars they made.

That kind of productivity increase is not possible w/ Childcare. I remember a Z Magazine cartoon more than 20 years ago where two women were pondering the mystery of why a child care worker can't afford child care and the unspoken punch line was that it was the perversity of capitalism but, no, it's not that economically efficient to pay somebody else to watch your kid for you. It makes money for the day care center, it makes money for your employer if you go to work, you pay taxes on the money you earn -- it makes money for a whole lot of people who aren't you.

You, not so much.

Universal child care is currently reeling from the discovery that recipients of universal child care in Montreal have turned into DQN adolescents. Maybe "the kids will be alright" in the end, but it is not looking like a program that pays for itself like Head Start.

pnutjam
Your acting like this is new, the poor have always been crapped on. It was common for wet nurses babies to die in the 18th and 19th century. A mother can make enough milk for 2 babies, but the wealthy who hired wet nurses didn't want poor babies around their precious rich babies.

Heartbreaking: https://daily.jstor.org/lifesaving-horrifying-history-wet-nu...

edit (typo)

raincom
What is DQN?
PaulHoule
Japanese slang for "Delinquent"
bluedino
In my state, a single childcare worker can watch up to 6 children. If they are infants I belive the number goes down to 4.
PaulHoule
That is not a lot to work with.

If there wasn't any overhead, the childcare worker with one infant would pay 1/4 of their wages on childcare, which doesn't leave a lot for housing, food, transportation, student loans, etc. They are only infants so long however...

Actually there is overhead, the child care center has to pay for a building, administrators, marketing, and possibly taxes.

Contrast that to the auto worker, who probably gets a new car relatively often, let's say it works out like a $300 a month, or $3600 a year.

I think auto workers are relatively well paid, so the cost of that car is 5% of their wages as opposed to 20% or more.

I've often wondered this too. I suspect that a family making use of WIC, medicaid / medicare and/or disability is commonly using more than $10k/person/year or gov't assistance, and would lose money going to UBI at that rate. I also wonder what could be done to avoid the UBI version of the two-income trap[0] - seems like UBI would naturally pressure entry level wages downward.

http://www.amazon.com/The-Two-Income-Trap-Middle-Class-Paren...

> That means homeschooling is restricted to the upper middle class, people in rural areas with cheap housing or people who are really, really willing to sacrifice for it. If everyone around you is on two incomes and you're on one that better be an excellent income or you will need to sacrifice a lot.

Elizabeth Warren has written an excellent book describing the pitfalls of two-income families that send their children to public schools. It's called "The Two Income Trap".

http://www.amazon.com/Two-Income-Trap-Middle-Class-Parents-G...

In it, she demonstrates that having two incomes isn't the advantage that you might intuitively think it is. Actually, having a single income and homeschooling (or outschooling) can make a family more resilient and flexible, for two main reasons:

1. A second income earner can be brought in if something happens to the employed spouse. Two-income families are already tapped out.

2. Location. If the family doesn't enroll their kids in a public school, they are free to live wherever they want, so long as the breadwinner can still commute. This cuts expenses way down. No longer do they have to compete with two-income earners for homes in a particular school district.

So, while having a parent remain at home is certainly a different lifestyle, it isn't clearly something that can only work for the wealthy. I know many homeschooling families who would not be described as wealthy.

bsder
> 1. A second income earner can be brought in if something happens to the employed spouse. Two-income families are already tapped out.

That's a very specious statement. The second income earner would have to begin a job search at a point when their secondary social network is weakest for that task.

In addition, the primary income rarely goes down due to accident. It is more likely that the primary income goes down due to a area effect: big employer goes under, depression in the general economy, etc. These will make it even harder for the second income to come online.

People who don't work at all. That's the choice (maybe more like outcome) the society went with. For what might the first time in history, the rich are working more than the poor[1] and labour participation rates are dropping[2].

In many ways this is a superior alternative. Children don't work. They used to. People spend a lot more time in school at the beginning of their life when it has the potential to have the biggest impact. It's not all bad. Although not quite living up to the dreams from 20th century either.

There's also something to be said about positional goods. A lot of people are driven by status and they work to be ahead of others. Elizabeth Warren believes that this explains why, despite technological progress, regular middle class family needs two incomes where one was enough a couple decades ago[3], they're competing for the same house, or school district. It doesn't explain everything but it's a factor.

[1] http://www.economist.com/news/finance-and-economics/21600989...

[2] http://equitablegrowth.org/2014/08/18/equitable-growth-make-...

[3] http://www.amazon.com/The-Two-Income-Trap-Middle-Class-Paren...

sp332
It's not that the current situation is really bad, but things seem to have stopped improving. Productivity keeps going up but wages don't.
tsotha
But total compensation does. Companies are paying workers the same (in constant dollars), but the amount they're paying to employ that worker goes up.

The real problem here is productivity increases have been almost entirely soaked up by the increase in the cost of health care.

Kiro
> Productivity keeps going up but wages don't.

Source?

toomuchtodo
http://anticap.files.wordpress.com/2010/11/fig2_prodhhincome...

This is where the 4 hour work week went.

Disclaimer: I am an ardent supporter of work hours being reduced as productivity rises.

spindritf
I'm guessing those wages exclude benefits, because when you consider total compensation it actually reflects growth in productivity.

Total employee compensation as a share of national income was 66 percent of national income in 1970 and 64 percent in 2006. This measure of the labor compensation share has been remarkably stable since the 1970s. It rose from an average of 62 percent in the decade of the 1960s to 66 percent in the decades of the 1970s and 1980s and then declined to 65 percent in the decade of the 1990s where it has again been from 2000 until the most recent quarter.

http://www.nber.org/papers/w13953

toomuchtodo
Possibly. Excluded benefits like health insurance? The cost of which has skyrocketed over the last 1-2 decades?

Makes sense.

notahacker
Not only are the goods positional, but also much of the new work that's been created. The extra hours aren't replacing children on the farm or in the factories (the developing work takes on those jobs as a much lower cost). They're being created in professions like marketing, banking and civil law which exist to a large extent more to defend their employers' margins from competition than improve productive output. A corollary of this is that, purely theoretically, a four hour workweek might be achievable for the middle classes simply by trading those hours worked that have a negative impact on the economy as a whole for leisure. The problem is that nobody knows which half of their advertising budget is wasted (but there will be no shortage consultants willing to charge expensive hourly rates to offer an opinion), and everybody knows that even though their own exceptionally hard-working investment manager spent hours making the wrong bets against the economic downturn, somebody sat on the upside of that trade and everybody would suffer if there was no liquidity whatsoever.

Beyond positional goods, the other money-suckers are higher education and healthcare, which are both on the one hand arguably an extremely good thing for increasingly large amounts of economic surplus to be thrown at despite inevitably diminishing returns, and on the other hand utterly ridiculous in the US.

enraged_camel
>>People who don't work at all. That's the choice (maybe more like outcome) the society went with. For what might the first time in history, the rich are working more than the poor[1] and labour participation rates are dropping[2].

Wow! Sorry, but did you actually read and critically analyze the links you provided?

The first link for example is utterly ridiculous. First, it defines "rich" people as those who have a Bachelor's degree. In which bizarro world is this actually true? Second, the author argues that these so-called rich people work more because of factors like "winner takes all" and "earning more money makes leisure more expensive." Whereas he completely ignores the elephant in the room, which is that poor people are almost always hourly and are discouraged (if not forbidden) from working overtime. In contrast, higher-paid workers are salaried, so of course their companies do their best to suck as much work out of them as possible. This fact alone can single-handedly explain the discrepancy in work hours.

Of course, what the submitted article is talking about when it says "rich" is actual rich people. You know, those who have "fuck-you money," either because they come from wealthy families or because they made a lucky exit. Those people don't have to work at all, and in fact most of them don't.

thelucky41
In the past century, the average retirement age has been steadily decreasing up until very recently when it began going up again[1]. People spend more time in school earlier, but education usually leads to working later in life as well[2].

[1] http://www.bls.gov/mlr/1992/07/art3full.pdf [2] http://crr.bc.edu/wp-content/uploads/2011/08/IB_11-11-508.pd...

cenhyperion
> education usually leads to working later in life as well

Do either of these explore why? My initial uninformed guess is that knowledge based fields many college grads go into are much less tied to physical fitness and thus workers are able to continue their jobs later into life when physical labor wouldn't be possible.

MaggieL
Maybe someone could suggest to Fauxcohontas that printing money and giving it away to those you deem worthy has an impact on wages and prices.
cousin_it
I think competition is the main villain here. Zero-sum games, prisoner's dilemmas, arms races and tragedies of the commons stole the four-hour workday from us, and many other good things besides. A nice toy example is "20% time" at companies like Google, which tends to evaporate as soon as your performance evaluation compared to your peers becomes tied to your performance at your main project.

The only solution to competition is centrally enforced precommitment. First, the government should actually enforce the eight-hour workday. Then it should reduce the workday, for all employers at once, so no one can get ahead by cheating. I don't see any other solution.

JamesBarney
I think the economic theory that is more appropriate is Tournament Theory.

http://en.wikipedia.org/wiki/Tournament_theory

cousin_it
Thanks for the link! I wasn't aware of it.
RivieraKid
Forcibly reducing the workday doesn't sound like a good idea, the optimal number of work hours depends on your specific situation. If I love my job, I could be ok with 9 hours a day. If I hate my job but it pays really really well, I could be ok with 4 hours a day or less.
inscrutablemike
You have to understand that no proposal for the government to enforce specific outcomes is ever an attempt to solve an actual problem. It's always, in every case, someone's attempt to make reality conform to their own ideological prejudices.
SupremumLimit
You have to understand that no comment is about describing reality as it is, but rather someone's attempt to make reality conform to their own ideological prejudices.
privong
> The only solution to competition is centrally enforced precommitment. First, the government should actually enforce the eight-hour workday. Then it should reduce the workday, for all employers at once, so no one can get ahead by cheating. I don't see any other solution.

This would not really be a solution. All it would result in is more people taking work home, because job evaluations would still be based on how much progress one made on the primary project. To get ahead and get that next promotion, many people would still feel compelled to work extra (unreported) hours. I suspect a madate such as what you propose would simply push the long work-days into being unreported.

This is basically what happens in graduate school (in the US, at least). I just finished a PhD program; as part of our contrats students agreed to only work 20 hours per week. There is no way one could finish a dissertation working on 20 hours per week, so everyone worked longer hours. Sure, you could complain about how many hours you worked (and some people did), but that did not change the fact that only 10–20% of Astronomy PhDs get faculty jobs, so if you want that faculty job, you need to put in the hours to do great research, regardless of the mandated 20 hour limit.

bmj
Do you think there /is/ a solution to the problem? Or is this just one of the side effects of capitalism?

I'm not trolling here...just curious. My own mind tends to go in the direction of the parent, but, I also see how enforcement would be next to impossible.

privong
I am not sure there is an institutional or global solution. But I am also not convinced it is an institutional or global problem. There are certainly individual solutions—accepting a different standard of living in exchange for fewer working hours, selecting careers which have better working hours—but I have trouble envisioning a global change (short of a cultural attitude shift) which would "solve" this "problem".
cousin_it
Sorry, tragedies of the commons don't have individual solutions. If everyone else is overfishing the common supply, you overfish as well, or go out of business. If everyone else is using performance enhancing drugs, you use them as well, or drop out. If everyone else is working 80 hour weeks and thus bidding up the price of houses, you do the same, or you can't buy a house. These things are very well studied in game theory, and I wasn't kidding when I said the only solution is centrally enforced precommitment.
ajcarpy2005
Individual liberty may be a resource being depleted by an emergently enforced necessity to work.
privong
Is this issue really a tragedy of the commons though? What resource is being depleted?
cousin_it
The market value of labor, relative to other goods.

Also see the book "Two-Income Trap", it basically describes how households didn't become better off from making both partners work, because that just bid down the price of labor relative to housing and education. Everyone ended up in the same position as before, but now they work 2x more and cannot opt out. Also the non-working partner in the family provided a safety net because they could start working if things got rough, and now that safety net is gone.

avz
> Everyone ended up in the same position as before, but now they work 2x more

Surely the extra people working produced more output (e.g. ~twice as many bugs fixed/year or ~twice as many new anti-cancer drugs/year). Supply of some things would remain constraint and their prices would be bidden up, but many others would have their supply increased and prices could even fall (e.g. due to capital costs spread over a larger number of units). We definitely have not ended up in the same position as before.

cousin_it
Sure, it's not the same position. Smartphones are getting cheaper. But how much do you spend on smartphones? The main argument is about things like housing and education, which don't seem to be getting cheaper.
seanflyon
You are equating basic competition with the tragedy of the commons. Even if it were a zero sum game (which it is not) it still would not be an example of the tragedy of the commons. The tragedy of the commons is when individuals have the option to consume, but do not have to bear the cost. They then choose to over-consume because they have no incentive not to. In your example the people who work 80 hours to afford a house, have to work 80, thus bearing the cost themselves.
RivieraKid
Not sure if I undertstand what was meant by "The only solution to competition" but I don't think competition is a problem.
None
None
avz
I think you're trying to solve a wrong problem. Work isn't a problem. Work is what propelled humanity to explore, understand and conquer the world around us. Human work is a requirement for the development of medicine, greener technologies, safer transportation and even space exploration and colonization.

If there are any problems about work, they are about making it more enjoyable, making good work more widely accessible and distributing the proceeds fairly.

waps
That is the exact problem with the 4 hour workday and other forms of part-time work. As I've heard many people describe part-time work : 40% of the pay for 80% of the work.

Until that changes, I would not expect part-time work to happen for anyone but really high up managers where such a trade may actually make sense.

Article calls out an interesting point by Elizabeth Warren.[1] In this country, it's extremely difficult to access the best schools without expensive housing. That encourages families to overextend and puts them at risk of bankruptcy.

There was a recent This American Life episode that demonstrated the human impact of our absurd system, where hyperlocal property taxes set school quality. I thought it was a particularly strong episode.[2]

[1] The Two Income Trap, http://www.amazon.com/The-Two-Income-Trap-Middle-Class-Paren... [2] This American Life #512, "House Rules" http://www.thisamericanlife.org/radio-archives/episode/512/h...

gohrt
Property taxes aren't the big factor they are made out to be.

School quality varies greatly even within a taxing district, yet still highly correlated to location of high-income people.

This is because wealthier neighborhoods have less street crime,

more parental involvement in children's education at home,

more parental involvement in schools,

children who in aggregate are better fit for school success (general health and safety, other factors),

teachers prefer to work with (and burn out more slowly with) better-behaved students.

The way around these issues would be to randomize school assignment (with residential schools (rare), or bussing (common, with its won set of complications)

tsotha
>In this country, it's extremely difficult to access the best schools without expensive housing.

Where is that not true?

HarryHirsch
There was a recent This American Life episode that demonstrated the human impact of our absurd system, where hyperlocal property taxes set school quality. I thought it was a particularly strong episode.

Oh yes. I remember my favorite bartender who after a divorce kept herself afloat working part-time retail and tending bar. There aren't many alternatives in nowhere rustbelt America. She rented an apartment that was in the only decent school district in town, all other schools were quite like juvie hall. About 75 % of her income must have gone to rent. When her youngest son had finished school she moved.

I cannot fault this decision, education is important, and when you are near minimum wage a support system is important. Moving to where the jobs are isn't the panacea it's made out to be on this website.

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