Home/Articles/Economy/How to Escape the Two-Income Trap

How to Escape the Two-Income Trap

The reprisal of Elizabeth Warren’s 2004 book The Two-Income Trap has sparked a valuable debate within the conservative policy community. Co-authored with her daughter Amelia Warren Tyagi, the book argues that the rise of two-income households has created a bidding war over goods like housing and child care, offsetting apparent household income gains and leaving families in a more precarious financial state.

Tucker Carlson thinks the book is onto something and that the GOP should become the party of traditional families. Helen Andrews thinks so too, but laments the contemporary dearth of female voices leading the charge. Other conservative thinkers aren’t so sure, particularly those like Scott Winship who have long defended the encouragement of maternal work as a pillar of conservative anti-poverty policy.

Warren’s original argument consists of many moving pieces, including tie-ins with her somewhat dubious academic work on household bankruptcy. Nonetheless, The Two-Income Trap’s appeal to a certain type of traditionalist should be obvious enough.

Yet accepting Warren’s version of the story at face value falls into a trap of its own, derailing the normative debate traditionalists would like to have into an empirical debate about Warren’s specific claims. Matt Bruenig’s critique, which showed how the data in The Two-Income Trap was improperly adjusted for inflation, was particularly devastating. Michael Strain of the American Enterprise Institute picked apart Warren’s “bidding war” theory in a recent column, writing: “If you’re looking for a reason why their costs have risen so much, start with policies that subsidize their demand and restrict their supply, not with women working.”

Indeed, the forces driving the rising cost of housing and child care run much deeper than female labor force participation. New research from the economist David Autor suggests they may even be a side effect of structural trends in our modern, post-industrial economy.

There have been a myriad of articles and reports highlighting that people move less than they used to. According to Autor, however, much of this observed effect is an artifact of the new geography of work. In the past, people moved twice: first, while young, from the country to the city, often for school, and then back to the country or suburbs to start a family.

People are still moving. But today, due to the college wage premium and the clustering of high-income jobs in cities, young folks tend to move to the city and then stick around. A new report from the Social Capital Project shows how this dynamic has contributed to brain drain in regions with population decline. It also bids up the cost of living in the receiving metro areas thanks to the—partly intrinsic, partly artificial—scarcity of real estate, despite stagnant wages for those without a post-secondary education. For working-class families in particular, urban living now all but necessitates two full-time earners.

Surveys suggest that mothers want to work part-time more than they’re able to afford. American women in general are having fewer children than they report to be ideal. Regardless of their origin, rising household costs, particularly in cities, are a big barrier to those preferences being realized.

Nonetheless, getting the order of cause and effect matters enormously for formulating a useful policy response. In Warren’s narrative, a cultural shift toward two income households caused a bidding war, à la keeping-up with the Joneses. But the gravitational pull of workers into cities would have arguably caused a bidding war and transition to dual-earner households anyway, cultural politics be damned.

Discouraging mothers from working won’t deflate household costs if those costs are a key reason moms work more than they prefer to in the first place. Child benefits, paid family leave, and relaxing restrictions on housing supply have a better chance at helping, but if the structural story is correct, we have to think bigger.

The first thing to recognize is that the migration to major metro areas and the decline of rural areas are two sides of the same coin. Deindustrialization has wreaked havoc on many local economies, while its cousin, “skill-biased technical change,” has dispersed the wage structure of the country as a whole.

Historically, the term for rebalancing an economy away from a half-dozen lucrative cities and professions is “industrial policy.” A scary concept in morelaissez-faire circles, it’s time pro-family conservatives took the idea seriously. Policies aimed at reviving meaningful, well-paid work in rural regions and smaller cities would create the kind of jobs and in the kind of places that are most conducive to family life. A more diversified economy would simultaneously lessen the demand surge in today’s magnet cities and expand labor market opportunities for those most likely to be net losers in the upper class’s place-based bidding war.

Investing in struggling regions while creating new career pathways for working-class households may seem orthogonal to traditional notions of family policy. Yet the evidence suggests that the two are intimately related. Just as industrial policy is key to helping developing countries escape the middle-income trap, so too will it help the United States escape the two-income trap.

Samuel Hammond is the director of poverty and welfare policy at the Niskanen Center. Follow him on Twitter @hamandcheese.

leave a comment