Time may only move in one direction – but just like a faster than light neutrino, let’s ignore physics for a bit! Inspired by this comment from an anonymous author, we will take you to the years 1976 and 1989 and look at life through the eyes of a recent college graduate.
For our income data we visited our trusty stalwart of a data dump, IPUMS-CPS. Our universe is 24-30 year old graduates not currently in college, just like our study of truck drivers. We then computed the income quartiles and the average for our population with greater than 0 hours worked per week. So, to reproduce our data, throw out anyone with usual hours worked equal to zero…
Excuse us – this article contains a generous amount of data. First up, let’s look at how our population fared in the income department!
We used two deflators – the CPI-E (this one includes fuel and food, to be fair) and the PCECPI. We know people have lots of problems with the CPI in general, but the truth is it is more likely to be overstated over a long period due to quality changes in goods (think along the lines of a 80″ 1080p LCD today vs. a 13″ Analog Black and White Tube TV in 1976). The PCECPI is based on the Personal Consumption component of the Gross Domestic Product, thus is harder to fake. If you’re still not convinced, please check out the car and house data – which are much harder to lie about.
And now, the median home price and a home payment based on the 30 year mortgage rate on January 1st of 1976, 1989, and 2011. For more information about why we are calculating home price affordability this way… click that link. Median home prices from the Census Bureau, and 30 Year mortgage rates from the St. Louis Fed. ‘Median Home Multiple’ is the median home price over the salary for each group listed. Front End Debt to Income on a 30 year mortgage is the 12 month mortgage payment versus the income listed (lower is better for both, but front end debt to income is likely more important. See our home affordability calculator.)
And finally, let’s compare a “$25,000 New Car” today to the equivalent car in the past. This is using just the new car component of the CPI transportation index.
Income data from IPUMS-CPS. Miriam King, Steven Ruggles, J. Trent Alexander, Sarah Flood, Katie Genadek, Matthew B. Schroeder, Brandon Trampe, and Rebecca Vick. Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database]. Minneapolis: University of Minnesota, 2010.
CPI and PCE data from the CPS survey, compiled by the St. Louis Fed (same for the CPI new car index and 30 year mortgage rates). Median home price from the Census Bureau.
There’s No Better Time Than The Present…
So, for our recent graduates in the 24-30 year old crowd… by all measures there is unequivocally no better time to be in the workforce than the present! Today’s $25,000 car is cheaper as a percentage of salary, and so is the home payment on a 30 year mortgage. By both of our deflators, CPI-E and PCECPI, income is higher adjusted for inflation.
There are a few wild cards that can throw some doubt into the results:
- What if college degrees are harder to get today? Despite upwards of 40% of matriculating students never finishing college, a higher percentage of the population has degrees today.
- What if jobs are harder to get today? While it is true that unemployment is higher, unemployment for the college credentialed is less than the general population. It was a clever trick tossing out those with 0 hours worked, but it doesn’t affect the results that much.
- What about student loans? As I pointed out in Matt Allen’s article on financing a degree, in 2008 65.6% of 4-year Bachelor Degree receiving students graduated with some student debt, and the average amount was $23,186.
- What if you still don’t like CPI? Using inflation to change the salaries is one thing, but consumption is harder to fake. Here’s another look at consumption for the median American from 1980 to 2009 (thanks to the University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan).
- What if you pick a less lucrative major? That’s why I showed you the 25th, 50th, and 75th percentile, along with the average. For a discussion on which degree to pick click that link!
Let us know in the comments if you can think of more!
So, are you convinced? Is the United States still a land of opportunity, even if the advancement seems to come at a snail’s pace? What should we tell politicians who are enamored with previous decades like the ’50s? And, how does this affect our previous question Is College Worth It?