The scary rise of the four-income household; and why credit cards are to blame for stagnant wages

Half of Americans didn’t get a raise last year, according to And that’s the good news (more people got raises this year than last year).  The bad news: The less you earn, the less likely you were to get a raise.  This reality leads to another: the gig economy is rapidly expanding, and not in ways that should make us proud. According to a new Gallup poll, 28% of workers now hold multiple jobs, and about one-third of them do so out of necessity. They aren’t making extra cash weaving artsy baskets to sell on Etsy. They are paying their kids’ tuition by driving for Uber at night.

As I’ve written before, this is the rise of the Four-Income household; or if Elizabeth Warren were to write her groundbreaking book today, it would properly be called The Four Income Trap.

Ask yourself this question: Not *that* long ago, a single worker could support a family in America. What happened? Today, for all but a precious few, that sounds like a fantasy. During the 80s and 90s, two-income households became the norm, bringing with them all the complications (and benefits.)  Today, I fear we are undergoing a change that’s equally as dramatic.  To afford the basics, like mortgage payments, healthcare premiums, and an occasional vacation, families are turning to gig income to plug the gaps. Two full-time jobs, two side hustles, four bosses, and a crazy life.

But isn’t the economy doing well? That might be the ultimate blind-men-and-the-elephant question. If you just received a nice holiday bonus, you probably think things are great. If you haven’t gotten a raise in years, you probably don’t.

Big numbers, like the unemployment rate or the S&P 500, aren’t much help either.  Not all employment is created equal. The recovery from the Great Recession has been so uneven because many solid middle-class jobs were replaced by low-wage jobs. Many 40-somethings earning $70,000 in 2005 had to take work in 2015 as 50-somethings making $50,000.  Hence, Uber.

What would help this situation? Some big fat raises.

I’ve written about raises before — that for many, getting a new job is the new raise; and the average American really hasn’t received a real raise since we put a man on the Moon. This chart suggests that if American household wages simply kept up with worker productivity gains during the past several decades, median income would be around $100,000 today.  Homes would be affordable to average-wage workers in hundreds more American cities. We’d be living in a different country.

Instead, for many, wages remain flat. At a time when the stock market is raging and there is endless droning on about how well the economy is doing, how can half of Americans get no raise?  This is not isn’t how capitalism is supposed to work.  But our version of capitalism is broken, and that’s why this discussion is so important.

When unemployment is low, firms should have to pay their workers more, lest they lose them to competitors.  That assumes competition is real, that workers are truly portable, and that the bargaining table is a fair fight.  These aren’t the conditions for today’s workers.  Many are tied to their jobs through externalities out of their control, like health insurance.  Moving is increasingly difficult because of housing costs.  And in many industries, two or three players dominate.  Heck, if you work in fast food, you might even have been required to sign a non-compete agreement.

Meanwhile, HR departments have Big Data and years of training to help keep labor costs down.  They know precisely how much they can underpay workers and not lose them.

But I think there are other, even deeper forces that are keeping wages low.  This is something that has bothered me for a while.

Another factor companies must consider when wage-setting is whether or not workers can afford live near where they work.  If employee can’t buy or rent a home within reasonable distance of the factory or office, the firm eventually won’t be able to fill open jobs. It either had to move to a cheaper place, or raise wages.  That’s a nice, simple lever for keeping wages in line with living expenses.

This natural lever has been snapped, however.  Look at these two charts.

Federal Reserve chart (click for original). The bottom line shows the expansion of credit card debt.


Economic Policy Institute – click for original. The bottom line indicates wage stagnation.

The first is the rise of credit card use among American consumers. The second shows the origins of wage stagnation.  Note the timing. Wages began to stagnate just as credit card use exploded. This could be a coincidence. Or, the explanation could be darker: instead of companies paying living wages to workers, companies let credit card debt plug the gap. Americans’ “raises” since 1970 have come in the form of risky unsecured debt.  Banks are loaning workers money so companies don’t have to pay them more.

As explained in the book The Financial Diaries, millions of Americans live lives meandering just above and just below poverty, propped up by questionable lending tools and tortured by unsteady incomes.

This is a gut-wrenching reality.  In fact, it’s so awful that many Americans have convinced themselves that this is the workers’ fault.  If they’d only stop using credit cards, their financial lives would be under control.  Sure, some people overspend on frivolities, but real credit card debt numbers show this is a small percentage of card users. Most Americans don’t carry any month-to-month credit card debt, and the one-third or so who do, most owe less than $10,000.  For them, a real-wage increase back to normal would make all the difference.

Instead, they scrape by with credit cards.

Things have spun so far out of hand that Sweetgreen, the hip salad company, has started a fund asking better-paid workers to donate money to lower paid workers so they can borrow from it in emergencies.  That is clearly not how capitalism is meant to work.

I think is the cause of a national depression, the fading of American optimism. It’s why most people don’t think their children will be better off than they were. I also think it’s the real reason we are at each other’s throats.  Everyone knows there’s a big ripoff happening; they just don’t know who to blame. Mexicans? Robots? Journalists? The Boston Red Sox? Lattes? Google?

One thing I promise you: decimal-point-level wage growth increases that show up in the monthly unemployment data are not going to solve this problem.  A dramatic rise in worker bargaining power, leveling the playing field between employee and employer, a return to a free labor market, is our only hope. It’s a tall ask. Getting rid of health insurance handcuffs will be essential. Remote work offers possibilities — the ultimate labor portability – but only if those are real jobs and not a first step towards outsourcing. Collective bargaining must re-emerge.  Dramatic improvement in education that maps to 21st Century jobs is also essential. Compensation schemes at companies can’t look like pyramids designed to feed the 1 percent any more.  (If you’re very interested, this paper by the Economic Policy Institute is an excellent primer. )

It’s a long road.  But the alternative is much worse. An America where half of workers get no raise during a time of unprecedented stock market gains, where employees are asked to donate wages to co-workers, is badly broken.  It cannot survive long.

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About Bob Sullivan 1648 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.


    • It is amazing,how hard the workers at our local Chick Fil A restaurant work.Must be something management knows that others don’t.

  1. The primary reason for the stagnation of American living standards is growth of government,that is so wasteful,inefficient and fraud infested,destroying massive amounts of wealth.Probably too late now to change,since so many Americans look to govt as their savior and keep voting for more govt,that wastes so much wealth and impoverishes so many.

  2. That is an uneducated partisan response. The fact is federal local and state governments supply tons of jobs, most with decent pay both directly AND indirectly. Think of all the so called “private” company’s like traffic and civil engineering, electrical engineering and aerospace. They all cannot exist without bidding on government contracts! If government were “small” we would end up with sweeping unemployment!

    • There shouldn’t be a limit on pay and benefits for government workers,no matter how little they do.In fact,they should all get raises.Who cares if the private sector makes much less and it taxed to pay for the “good” people?

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