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Time Well Spent
The Declining Real Cost of
Living in America
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| A Letter
from the President
Time is money, they say.
But money, rather than time, is how we usually
keep score.
We use money to value our
work and the things we buy. When we say we have
trouble keeping up with the Joneses, we're talking
about money, not time. That's why whenever we
get close to the Joneses, they refinance.
While money has become a
more nearly constant measure of value in recent
years, it remains imperfect. Inflation makes money
an elastic standard over time, like a rubber yardstick.
That's why this year's annual report essay looks
behind money to time as a measure of our economic
progress. Our progress is best gauged by the shrinking
work time it takes to pay for the necessities
and luxuries of life. Work time enables us to
compare our productivity and standard of living
over the long haul.
What such comparisons show
is that our free enterprise system drives down
real prices so goods and services once within
the reach of only the most wealthy become affordable
by the rest of us. For example, once upon a time
only Peter, Paul and Mary could afford to leave
on a jet plane. Now I can, too, if I buy my ticket
two weeks in advance and stay over a Saturday
night. The essay cites other results of our great
productivity machine.
Our essay, "Time Well
Spent: The Declining Real Cost of Living
in America," continues the Dallas Fed's recent
series of optimistic looks at our dynamic free
enterprise system, the world's greatest engine
of growth and prosperity and its greatest welfare
program. In 1997 the Dallas Fed's exploration
of market-based solutions to public policy problems
included conferences on education reform, the
potential for markets to allocate water in Texas
efficiently, the economic impact of immigration,
market-driven health care, privatization of local
government services, and microlending as a means
of helping low-income individuals own their own
business. Our economic research also dealt with
a wide range of public policy issues, beyond the
traditional focus on monetary theory and policy.
Our optimism about the American
economy was well placed last year. Real GDP grew
almost 4 percent, employment was up 3.2 million,
unemployment fell to 4.7 percent and the Consumer
Price Index increased only 1.7 percent. The best
performance in years in both unemployment and
inflation left many less optimistic souls scratching
their heads. We, however, expect more of the same
in 1998.
Most good things about the
national economy in 1997 were even better in the
Eleventh Federal Reserve District. Employment
growth, particularly in Texas, continues to outpace
the national average. District banks are sharing
in the prosperity; they are sound, liquid and
well capitalized. Texas bankers finally succeeded
in getting antiquated restrictions on home-equity
lending partially removed, which should unlock
capital for the state's homeowners. That plus
the refinancing boom triggered by low mortgage
rates should give the Texas economy an extra kick
in 1998. Keep it between the ditches, boys and
girls. No more "goin' and blowin'" this
time around.
| — |
Robert D. McTeer, Jr. |
| |
President and Chief
Executive Officer |
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Time Well Spent
The Declining Real Cost of
Living in America
Queen Elizabeth owned silk stockings.
The capitalist achievement does not typically consist in
providing more silk stockings for queens but in bringing
them within the reach of factory girls in return for steadily
decreasing amounts of effort.
—Joseph Schumpeter
Capitalism, Socialism, and Democracy
As America exits the 20th century, we'd
be hard-pressed to find a five and dime store. Penny candy
now goes for a nickel. Five cents no longer buys a good cigar.
Dime novels can't be found. Even a 3¢ stamp costs 32¢.
Over the century, prices have gone up. The buying power of
a dollar is down. We know this from statistical measures of
inflation. We know it also from Grandpa's stories about paying
15¢ for a ticket to Gone With the Wind or 19¢
for a gallon of gasoline. Even a casual observer of the U.S.
economy can see that the prices of milk, bread, houses, clothes,
cars, and many other goods and services rise from year to
year.
The cost of living is indeed going up—in
money terms. What really matters, though, isn't what something
costs in money; it's what it costs in time. Making money takes
time, so when we shop, we're really spending time. The real
cost of living isn't measured in dollars and cents but in
the hours and minutes we must work to live. American essayist
Henry David Thoreau (1817-62) noted this in his famous book,
Walden: "The cost of a thing is the amount of.
. .life which is required to be exchanged for it, immediately
or in the long run."
The shortcoming of money prices is that
they mean little apart from money wages. A pair of stockings
cost just 25¢ a century ago. This sounds wonderful until
we learn that a worker of the era earned only 14.8¢ an
hour. So paying for the stockings took 1 hour 41 minutes of
work. Today a better pair requires only about 18 minutes of
work. Put another way, stockings cost an 1897 worker today's
equivalent of $22, whereas now a worker pays only about $4.
If modern Americans had to work as hard as their forebears
did for everyday products, they'd be in a continual state
of sticker shock—$67 scissors, $913 baby carriages,
$2,222 bicycles, $1,202 telephones. (See Exhibit 1: The
High Cost of Living, 1897 Style.)[1]
The best way to measure the cost of
goods and services is in terms of a standard that doesn't
change—time at work, or real prices.[2] There's a regular
pattern to real prices in our dynamic economy. When a product
first comes onto the market, it's typically very expensive,
affordable for only society's wealthiest. Soon thereafter,
though, its price falls quickly and the product spreads throughout
society. Once the good or service becomes commonplace, its
price usually continues to fall, but at a slower rate. This
tendency shows up in such everyday purchases as housing, food,
clothing, gasoline, electricity and long-distance telephone
service. It also applies to manufactured goods—automobiles,
home appliances and the modern age's myriad electronic marvels.
And year after year it takes less of our work time to buy
entertainment and services-movies, haircuts, airline tickets,
dry cleaning and the like. In a very real sense, the cost
of living in America keeps getting cheaper. By harnessing
the natural power of income distribution, free markets have
routinely brought the great mass of Americans products once
beyond even the reach of kings.[3]
Affording the Basics
Americans come in all shapes and
sizes. We differ in height and weight, gender, race and age.
We vary in talents, skills, education, experience, determination
and luck. Quite naturally, our paychecks differ, too. Some
of us scrape by at minimum wage, while movie stars, corporate
chieftains and athletes sometimes make millions of dollars
a year.
In appraising the nation's cost of living,
it's what the average American can afford that matters. Calculations
of the work time needed to buy goods and services use the
average hourly wage for production and nonsupervisory workers
in manufacturing.[4] A century ago this figure was less than
15¢ an hour. By 1997 it had hit a record $13.18, a livable
wage but nothing worthy of Lifestyles of the Rich and
Famous. What's most important about this wage is that
it represents what's earned by the great bulk of American
society. (See Exhibit 2: Average Hourly Wages, 1897–1997.)
In calculating our cost of living, a
good place to start is with the basics—food, shelter
and clothing. In terms of time on the job, the cost of a half-gallon
of milk fell from 39 minutes in 1919 to 16 minutes in 1950,
10 minutes in 1975 and 7 minutes in 1997. A pound of ground
beef steadily declined from 30 minutes in 1919 to 23 minutes
in 1950, 11 minutes in 1975 and 6 minutes in 1997. Paying
for a dozen oranges required 1 hour 8 minutes of work in 1919.
Now it takes less than 10 minutes, half what it did in 1950.
The money price of a 3-pound fryer chicken rose from $1.23
in 1919 to $3.15 in 1997, but its cost in work time fell from
2 hours 37 minutes to just 14 minutes. A sample of a dozen
food staples-a market basket broad enough to provide three
squares a day-shows that what required 9.5 hours to buy in
1919 and 3.5 hours in 1950 now takes only 1.6 hours. (See
Exhibit 3: Our Daily Bread.)
Americans' homes sell for a lot more
than they once did. In 1920, the median price of a new house
was $4,700. Forty years ago, as America moved to the suburbs,
a typical family paid $14,500 for a new house. Today, the
median price is up to $140,000. Housing inflation has outstripped
the rise in wages, so the comfort of a roof overhead must
be getting more expensive, right? Not really. Today's homes
are more expensive, but they're also a lot bigger, so for
comparison purposes their price must be expressed in cost
per square foot.[5] By that measure, the work-time cost of
new homes fell from 7.8 hours in 1920 to 6.5 hours in 1956
and 5 hours in 1970, but then rose to 5.6 hours in 1996. (See
Exhibit 4: Gimme Shelter.)
It's true that from 1970 to 1996 the
work-time cost of a square foot of housing rose just over
half an hour. It's a mistake, however, to jump to the conclusion
that the trend toward greater value in housing ended a generation
ago. These days we're getting more home for our money. Today's
new homes are more likely to come with central heat and air-conditioning,
major kitchen appliances, a garage, an extra bathroom or two,
ample insulation, storm windows and many other extras. The
basic price of today's new homes includes these amenities,
so it's impossible to calculate exactly what's happened to
the real cost of housing. But it's a safe bet that the added
features more than offset the extra 10 percent of work time.
And families have continued to get smaller over the past quarter
century. Taking into account the shrinkage in average household
size, an individual's housing cost, expressed in work time,
is actually 6 percent cheaper today than in 1970. Two-thirds
of Americans now own their own home—the highest percentage
in history and up from 45 percent in 1920.
Much of what's in our homes is getting
cheaper, too. Over just the past 27 years, consumers have
benefited from work-time declines of 60 percent for dishwashers,
56 percent for vacuum cleaners, 40 percent for refrigerators
and 39 percent for lawn mowers. (See Exhibit 5: Domestic
Servants.) The cost of a twin mattress and box spring
fell from 161 hours in 1929 to 78 hours in 1957, 42 hours
in 1970 and 24 hours in 1997. A room air-conditioner now costs
less than 4 hours of work for each 1,000 BTUs, down from 7.5
hours in 1970 and more than 40 hours when first introduced
in 1952. Since entering the market, portable radio prices
have declined from more than 13 hours to less than 1 hour
of work.
There are bargains in the closet as
well. After aviator Charles Lindbergh became the toast of
two continents by flying solo from New York to Paris in 1927,
he toured the United States in a Hart Schaffner & Marx
suit that cost $42.95. It would have taken an Average Joe
79 hours to buy that outfit. Today the same company sells
comparable suits for $525, the equivalent of 40 hours of work.
Over the past century, the work-time cost of a pair of Levi's
jeans has fallen by nearly 7 hours, to 3 hours 24 minutes.[6]
With basics such as these costing less,
more of our budgets can go toward other products. In 1901,
the average family spent three-quarters of its income on food,
shelter and clothing. Almost a century later, it's little
more than a third.
The Cost of Living High
When people talk about the high
cost of living, they're usually talking about the cost of
living high. But moving beyond the basics, in the currency
of work time almost everything else we buy is getting cheaper,
too. Take transportation.
If any invention has made its mark on
American culture, it's the automobile. We consider it our
birthright to own a car—often two or three. Within a
few years, the United States will likely become the first
country to have more vehicles than people.[7] In 1908 a typical
factory worker had to toil more than 2 years to buy Ford's
Model T, one of the nation's first affordable cars.[8] A 1997
Ford Taurus costs today's worker just 8 months. Of course,
few of us would pay even $850 for a Model T today, at least
not for everyday transportation. Today's cars are just so
much better. Going back only one generation, we can see an
enormous improvement in the quality of cars and trucks. Today's
vehicles last longer. They require less maintenance, with
some 1997 models traveling 100,000 miles before their first
tune-up. They're more comfortable because of air-conditioning,
power seats and adjustable steering columns. They often include
such extras as power windows, sunroofs, tinted glass, cruise
control and compact disc players. They're safer with the addition
of air bags and antilock brakes, which have contributed to
the decline in traffic fatalities from 7.6 per 100 million
miles traveled in 1950 to 1.9 today. As with housing, part
of the increase in auto prices stems from better quality.
So although buyers are shelling out more money than they once
did, cars have never been such good values. (See Exhibit
6: Kings of the Road.)
Drivers may grumble when they pull into
a service station, but a gallon of gasoline required just
5.4 minutes of work in 1997, compared with 6.6 minutes in
1970, three years before the Arab oil embargo caused prices
to surge. If we consider the 60 percent increase in average
miles per gallon since 1970, the work time to drive a typical
car 100 miles has been nearly halved over the past quarter
century—from 49 minutes in 1970 to 28 minutes today.
The price of an automobile tire has risen from $13 in the
mid-1930s to about $75 today. However, today's steel-belted
radials last more than 42,000 miles, a big increase from the
16,000 miles for the nylon tires of the 1950s or the 2,000
miles for the 31/2-inch, cotton-lined tires of the early 1920s.
Based on work time per 1,000 miles, tires are now cheaper
than ever.
Much of today's consumption centers
on leisure. What helps make the good times good is the declining
real cost of life's pleasures—little and big. The price
of a movie declined from 28 work minutes in 1970 to 19 minutes
in 1997. Compared with a generation ago, each 1,000 miles
of air travel now requires 61/2 hours less work. A seven-day
Caribbean cruise slipped from 51 hours in 1972 to 45 hours
in 1997.
It's even getting cheaper to look our
best: work time for dry-cleaning a dress is half what it was
in 1946, and a woman's haircut is down 27 percent since 1950.
Soft contact lenses have plummeted from more than 95 hours'
wages in 1971 to less than 4 today—and the latest versions
can be worn longer.
We're a nation on the go, grabbing fast
food and snacks. Americans may be eating more of these foods
because they're getting cheaper. Buying a large pepperoni
pizza costs an eighth less work time than in 1958—and
today we can get it delivered to our door. A 6.5-ounce bottle
of Coca-Cola has declined from 5.5 minutes in 1920 to 3.5
minutes in 1970 to 1.5 minutes today. In 1940 Californians
paid 30¢—nearly half an hour's wages—for
the McDonald brothers' first burger—a one-eighth pounder.
Today's one- fifth-pound Big Mac costs $1.89, the equivalent
of just 8.6 minutes' work. The price of a Hershey's chocolate
bar has risen from 10¢ to 45¢ over the past 23 years;
still, its price in work time is a mere 2 minutes, a tenth
of what it cost at the turn of the century. A five-stick pack
of Wrigley's chewing gum has jumped from a nickel to a quarter
since 1964, but its work cost has ebbed by 24 seconds. (See
Exhibit 7: Food on the Go.)
Americans do, of course, have to work
longer to buy some goods and services. Paying for higher education
and medical care requires more hours of work than it used
to. Tuition and fees at public colleges, for example, have
doubled in terms of work time since the mid-1970s. Inflation
has been even steeper at America's private institutions.[9]
But such higher prices are rarely without justification. In
many cases the quality of what we're getting for our money
has improved.
Few of us would deny that medical care
is better than it used to be. After all, the past quarter
century has brought a wealth of new diagnostic tools and drugs
to treat ailments that range from cancer to depression. But,
given the general public's disenchantment with American education,
the notion that what colleges provide students today may actually
be worth more might raise eyebrows. An accurate measure of
the cost of education would require extensive information
about its quality, much of it subjective. One objective measure,
however, is the value the economy puts on a sheepskin. Workers
with a bachelor's degree earn an average of $16,504 a year
more than high school graduates today, up from $10,488 more
in 1979.
Falling Faster at First
In looking at the work-hour cost
of living, it's clear that most of the good news comes as
products permeate the marketplace. In minutes of work, orange
prices fell 63 percent from 1919 to 1938. It took another
60 years to match that decline. The work time required to
buy a pack of Wrigley's chewing gum fell an average of 7 percent
a year in the first two decades of the 20th century but less
than 2 percent a year after 1920. The real price of a gallon
of gasoline halved in the 21 years from 1920 to 1941; it took
another 45 years to equal that. Still, it's encouraging that
the real cost of most of these products has continued to drift
lower.
Americans are always buying goods and
services that are in the early stages of their product cycle.
Often, money prices fall fast at first. A handheld calculator
too bulky to fit easily into a pocket or purse sold for $120
in 1972.[10] A mere quarter century later, true pocket calculators
sell for $10—cheaper than a slide rule was in 1952.
A 25-inch color television with remote control went for as
little as $299 in 1997, compared with $620 in 1971 and more
than $1,000 for early color sets in the mid-1950s.[11] Videocassette
recorders entered the mainstream market at $985 in 1978. Twenty
years later, VCRs offering surer picture tracking, on-screen
programming and other features cost less than $200. Cellular
phones sold for $4,195 in 1984; they're available for $120
or less today. Better yet, the phones are often free for the
price of monthly service, which itself has fallen to about
half what it was a decade ago. These aren't isolated examples.
Over the past generation, the sticker prices for microwave
ovens, camcorders and many other items have fallen.
Combining falling prices with rising
wages yields even more bounty for consumers. When prices are
converted from dollars and cents into hours and minutes of
work, many of the modern age's signature products become spectacular
bargains. In terms of time on the job, the calculator's price
plummeted from 31 hours in 1972 to 46 minutes today, less
time than it takes for lunch. The color television that required
over 3 months' work to buy in 1954 was down to 1 month by
1971; today the work-time cost is just 3 days. VCRs sell for
15 work hours, or almost 90 percent less than in 1978. Over
the past 13 years, the work time required to buy a cell phone
has declined 98 percent. It took an average worker more than
176 hours on the job to buy a microwave oven in 1967; now
it's 15 hours. Dad had to work 57 hours in 1960 to buy a camera
to take home movies—a Bell & Howell model that used
Kodak film and required a separate projector. Today, 42 hours
of work will buy a camcorder that preserves our memories on
a handy cassette that slips into the family's VCR.
Computing power provides perhaps the
most vivid example of something getting cheaper as it becomes
an everyday product. A circa 1970 IBM mainframe, capable of
12.5 million calculations a second, sold for almost $4.7 million.
Today, we can pay less than $1,000 for a personal computer
capable of operating 13 times faster. In average work time,
the cost of today's computing is down to 27 minutes for each
1 million calculations per second—a price likely to
continue falling.[12] With the IBM mainframe of the 1970s,
owning enough computing power to plow through that many calculations
per second would have taken more than a lifetime of work.[13]
Whether it's calculators or computers,
Americans today get the best of all worlds—better products
for less effort. Commonplace consumer goods aren't likely
to post spectacular price declines down the road, but the
future will bring a new generation of products that will repeat
the pattern of falling prices. Later this year, manufacturers
will begin offering high-definition television, a technology
that promises to deliver crystal-clear images into American
living rooms. When HDTV sets hit the market, they will cost
as much as a used car—about $5,000 to $10,000. Within
a few years, the televisions will doubtlessly sell for a quarter
or even a tenth of that. The hours of work required to own
one, of course, will fall even faster.
The Economics of Cheaper and Better
The phenomenon of so many products
becoming more and more affordable can't be simply dumb luck.
To the contrary, we owe the prosperity of our times to the
routine workings of our free enterprise system. In the labor
market, the system spurs the increases in productivity that
pull up wages. In the product market, it provides the incentive
to innovate and the discipline to become more efficient. The
benefits flow to American consumers in the form of better
values—more for our money and more money for our time.
Just about all new goods and services
go through a cycle of falling prices and improving quality
as companies ratchet up to large-scale production, as markets
expand, as competition arrives in the marketplace and as goods
and services move from luxuries to everyday conveniences.
Virtually every new product requires an up-front investment,
often sizable, to cover the cost of getting started. Whether
innovation springs from startups or established companies,
it requires money for research and development as well as
the physical plant, machinery, equipment and labor needed
to launch production. The cost of reaching just the first
customer ranges from a few thousand dollars for a mom-and-pop
enterprise to billions of dollars for Fortune 500 companies.
New markets are initially small, so
the fixed costs of introducing products are spread over relatively
few consumers at first. Prices start out high. As markets
increase in size, these fixed costs are spread over more and
more sales. Larger production runs mean lower per-unit costs
and economies of scale take hold. Success attracts competitors,
kicking off a race to see which company can offer the best
product at the lowest cost. Companies must slash prices to
stay in business. As markets mature, it becomes more difficult
to wring new efficiencies out of the production process, and
producers aren't able to cut prices as much. The biggest declines
in money prices and work-hour costs come in the early stages
of a product's life cycle.
The United States had more than 360
automobile manufacturers in 1920, all sensing a fast-growing
industry, all vying in a race that had no clear winners. Auto
prices ranged from $200 for a Briggs & Stratton to $7,250
for a Pierce-Arrow. The companies that emerged from the fracas
were those offering the highest quality at the lowest price.
Hundreds dropped out of the market, but their loss didn't
go to waste. Good ideas endured—the automatic transmission,
the speedometer, four-wheel brakes—and were embodied
in the products offered by industry survivors.
A relatively small number of consumers—typically
the wealthy—are the first to acquire hot new products.
In effect, they nurture infant industries and product lines
by paying most of the fixed costs. For the rest of us, prices
reflect only companies' added cost of producing what we want.
The dichotomy helps explain why some sectors of the economy
show steep price reductions while others go through the process
more gradually. Big declines usually occur when fixed costs
are high. It's true for computers. And electronics. And pharmaceuticals.
And for many other products. When fixed costs aren't overwhelming,
companies start out charging prices closer to marginal cost-a
pattern that fits food and personal services.
Capitalism's critics often fret about
the wealthy having too much, but uneven income distribution
plays a role in developing markets. New products are usually
very expensive—outside the reach of all but society's
wealthiest. Henry Ford sold his first Model T for $850 in
1908. At the equivalent of more than 2 years' wages for ordinary
factory workers, only 2,500 cars were sold. By 1920 Ford had
incorporated numerous improvements into his sedan—including
an electric starter, demountable rims and an enclosed body—yet
cut its work-hour price by nearly two-thirds. Even with its
extensive list of standard features, today's Taurus sells
for less work time than either the Model T sedan or the 1955
Fairlane. And Ford has soundly answered critics' claims that
the car is just a "rich man's toy." More than 92
percent of U.S. households own an auto; 62 percent own two
or more. (See Exhibit 8: The Bounty of Time Well Spent.)
One more example helps prove the point.
A 3-minute phone call from New York to San Francisco, for
example, cost $20.70 when first available in 1915. Earning
an average hourly wage of less than 23¢, the working
stiff of that day would have had to labor more than 90 hours
to afford a call. Yet long-distance telephone service did
take root in the marketplace—and it grew. Somebody had
to pay the high price, or the service would have been just
another failed entrepreneurial gamble. In footing the initially
high bill, the rich paid the fixed cost of bringing long-distance
service to the masses in America. Today, of course, nearly
all of us are "rich" enough to afford long-distance
calls. A 3-minute coast-to-coast connection costs less than
50¢, or a scant 2 minutes of work.
Without society's wealthy, fewer new
goods and services would find their way to the rest of us.
Indeed, the wealthy's free spending spurs a democracy of consumption
because it starts the process of lowering prices. As a result,
today's average Americans have what only a few could once
enjoy. The system harnesses the spending of a relative few
and puts it to work delivering goods to the masses.[14] Far
from being a blight on society, unequal income distribution
is instrumental in driving society forward. It's a natural
resource.
The Mechanism of Markets
The true test of an economic system
is how productive it is with people's time. The majority of
us aren't born with big bank accounts, but we are born with
time. Time is the real currency of life, and the value of
our time—what we can acquire for its exchange—is
our most important asset. Like a good steward, America's free
enterprise system has consistently raised the value of our
hours and minutes, making most goods and services affordable
for the average worker. The result is a democracy of consumption.
In 1928, Herbert Hoover's presidential
campaign promised Americans "a chicken in every pot .
. . and a car in every backyard, to boot." Today, we
have all that and much, much more—not by the grace of
government but by the mechanism of markets.
When common labor supports the good
life, it's truly time well spent.
—W. Michael Cox and Richard
Alm
|
| Notes
- Whenever possible, this report uses specific
product models rather than broad product categories
to make price comparisons. As Federal Reserve
Chairman Alan Greenspan noted recently, "It
is the measurement of individual prices, not
the aggregation of those prices, that is so
difficult conceptually.…[While] the prices
of a ton of cold rolled steel, or of a linear
meter of cotton broad woven fabric, can be reasonably
compared over a period of years…when the
characteristics of products and services are
changing rapidly, defining the unit of output…can
be conceptually difficult." Although some
generality may be sacrificed, it is easier to
accurately compare, say, a 1908 Model T with
a 1997 Ford Taurus than "cars" with
"cars."
- An hour of work isn't without its vagaries
if we try to measure the effort and discomfort
involved in doing our jobs. The majority of
today's workers—sitting at computers in
well-lighted, air-conditioned offices—are
sacrificing less of their energy and well-being
than yesterday's cotton picker, coal miner or
barge hand.
- For a discussion of other aspects of income
distribution and mobility, see "By Our
Own Bootstraps: Economic Opportunity and the
Dynamics of Income Distribution," 1995
Annual Report of the Federal Reserve
Bank of Dallas.
- This is the only statistical series on wages
that goes back far enough to make comparisons
over a century. It covers a large number of
workers but by no means all of them. Pay in
manufacturing was above the average for wage
and salary workers for most of this century,
but in recent years the gap has all but disappeared.
A smaller portion of today's workforce, moreover,
holds factory jobs. At the turn of the century
the United States was still predominantly an
agricultural nation. Weekly wages for farm labor
averaged roughly $4.75, about half that of factory
workers. So if anything, the use of manufacturing
wages biases the research in this report against
measuring the full extent of the decline in
real living costs.
All wage statistics fail to account for income
and payroll taxes, which have grown from 5
percent of wages in the early 1950s to about
21 percent today (for year-round, full-time
workers in manufacturing). Balancing that
out, however, is the omission of nonmonetary
employee benefits, which are 44 percent of
wages today, up from 19 percent in 1953.
-
Looking at averages, a new home in 1996 had
2,120 square feet, bigger by two 12- by 15-foot
rooms than in 1970. A 1956 new house had 1,230
square feet; in 1920 the mean was 1,100 square
feet.
- The low point in the cost of jeans came in
1971, when it took 2 hours 16 minutes to buy
a pair. The subsequently higher prices reflect
changes in the garment's quality. Most of today's
jeans are designed for fashion wear, not manual
labor, with special processes that improve fit
and comfort.
- Already, cars and trucks nearly outnumber
Americans old enough to drive. In 1995, when
the population age 16 and over totaled 201.2
million, the country had 193.4 million vehicles.
- The average workweek for manufacturing employees
in the 1920s was roughly 50 hours, whereas today
it is about 40. For consistency of comparison,
all monthly and weekly figures in this report
are based on a 40-hour workweek.
- In 1966 average annual tuition at a private
college required 537 hours of work; 30 years
later it was up to 1,295 hours. Public universities
went from 133 hours to 260 hours.
- In 1971 Texas Instruments and Canon jointly
introduced a model selling for $390. Breakthroughs
at TI helped slash the price by 70 percent in
just a year.
- Technology also allowed television screens
to get a lot bigger. Today families can buy
36-inch models for less work time than a 19-inch
set in 1971.
- In January 1998 IBM cut the price of its 233-MHz
MMX Aptiva to $999, lowering the cost to under
20 minutes per MIPS.
- This calculation assumes an average work life
of 90,000 hours, at 40 hours a week, 50 weeks
a year, for 45 years.
- While even socialist economies may eventually
get the goods (with a very long lag), they rarely
do so without the delivery system of markets
elsewhere. To put it bluntly, they free ride
on the accomplishments of their capitalist neighbors.
Acknowledgments
"Time Well Spent: The
Declining Real Cost of Living in America"
was written by W. Michael Cox and Richard Alm.
The essay is based on research conducted by Cox,
vice president and economic advisor, Federal Reserve
Bank of Dallas. Thanks also go to Charlene Howell,
Sergei Polevikov, Marci Rossell and Meredith Walker
for help with this project.
Selected Resources
American Petroleum Institute,
Basic Petroleum Factbook-Petroleum Industry
Statistics (Washington, D.C., 1995).
Burness, Tad, Cars of
the Early Twenties (Philadelphia: Chilton
Book Co., 1968).
Cherington, Paul W., Airline
Price Policy: A Study of Domestic Airline Passenger
Fares (Elmsford, N.Y.: Maxwell Reprint Co.,
1958).
Coombs, Whitney, The
Wages of Unskilled Labor in Manufacturing Industries
in the United States, 1890–1924 (New
York: Columbia University Press, 1926).
Davies, R. E. G., A
History of the World's Airlines (London:
Oxford University Press, 1964).
Friday, Franklin, A
Walk Through the Park: The History of GE Appliances
and Appliance Park (Louisville, Ky.: Elfun
Historical Society, 1987).
Hudson, Kenneth, Air
Travel: A Social History (Totowa, N.J.: Rowman
and Littlefield, 1972).
Information Please Almanac,
ed. Otto Johnson (Boston: Houghton Mifflin Co.,
various editions).
Lichty, Robert, Standard
Catalog of Ford, 1903–1990 (Iola, Wis.:
Krause Publications, 1995).
Love, John, Behind
the Arches (New York: Bantam Books, 1986).
Munk, Nina, "A Convenience-of-Living
Index?" Forbes, September 14, 1992.
National Bureau of Economic
Research, "Estimates of Residential Building,
United States, 1840–1939," Manuel Gottlieb,
Technical Paper 17, 1964; "The Volume of
Residential Construction, 1889–1950,"
David M. Blank, Technical Paper 19, 1954.
Public Roads Administration,
Highway Statistics, Summary to 1945,
1947.
Schumpeter, Joseph A., Capitalism,
Socialism, and Democracy (New York: Harper
& Brothers Publishers, 1950).
U.S. Bureau of the Census,
"Beyond Poverty, Extended Measures of Well-Being:
1992," Kathleen Short and Martina Shea, Current
Population Reports, Series P70-50RV, November
1995; Census of Housing (various years);
Historical Statistics of the United States,
1789–1945, 1949; Historical Statistics
of the United States, Colonial Times to 1970,
Bicentennial Edition, 1975; Statistical Abstract
of the United States (various editions).
U.S. Bureau of the Census
and U.S. Department of Housing and Urban Development,
Characteristics of New Housing (various
years).
U.S. Department of Energy,
Energy Information Administration, Housing
Characteristics (various years).
U.S. Department of Labor,
Consumer Expenditure Survey; Employment, Hours,
and Earnings, United States, 1909–1984,
Vol. I; Employment and Earnings; "How
Family Spending Has Changed in the U.S.,"
Evan Jacobs and Stephanie Shipp, Monthly Labor
Review, March 1990; New Housing and Its
Materials, August 1958.
U.S. Department of Transportation,
National Personal Transportation Survey,
1995.
The World Almanac and
Book of Facts 1997, ed. Robert Famighetti
(Mahwah, N.J.: K-III Reference Corp., 1996), "U.S.
Computer Sales and Ownership, 1983–96."
Exhibit Notes and Data Sources
Page 3
The High Cost
of Living, 1897 Style
1897 Sears, Roebuck Catalogue.
Page 4
Average Hourly
Wages, 1897–1997
U.S. Bureau of the Census (Historical Statistics
of the United States: 1789–1945); and
U.S. Department of Labor (Employment, Hours,
and Earnings, United States, 1909–1984,
Vol. I; Employment and Earnings).
Average Weekly
Wages by Industry, 1897
Coombs 1926.
Page 5
Our Daily Bread
U.S. Department of Labor.
Page 6
Gimme Shelter
National Bureau of Economic Research; U.S. Bureau
of the Census and U.S. Department of Housing and
Urban Development; U.S. Department of Energy;
U.S. Department of Labor (New Housing and
Its Materials).
Page 7
100 Kilowatt-Hours
of Electricity
U.S. Department of Energy; U.S. Bureau of the
Census (Historical Statistics of the United
States, Colonial Times to 1970).
Mattress and
Box Spring
1929 Beautyrest mattress and Ace box spring and
1957 Beautyrest mattress and box spring: Simmons
Company (king set prices are for two twin sets).
1970 Simmons 100th Anniversary Deluxe: Life,
July 24, 1970. 1997 Simmons Beautyrest Super Premium
series: Dallas-area retailer.
Air-Conditioner
1952 5,500 BTU GE model and 1970 6,000 BTU GE
model AGKE106AA: Life, June 26, 1970.
1997 6,000 BTU GE model: Dallas-area retailer.
Page 8
Domestic Servants:
Range
1910 Hughes Electric Heating Co. three-burner
stove and portable oven: Carnegie Library of Pittsburgh,
Science and Technology Department. 1950 GE model
and 1970 GE model J339L: Life, June 26,
1970. 1997 GE model JBSO3GY: Dallas-area retailer.
Dishwasher
1913 Walker Bros. model: Friday Historical Business
Archives. 1954 GE model and 1970 GE model GGSM353L:
Life, June 26, 1970. 1997 GE model GSD4320Z:
Dallas-area retailer.
Refrigerator
1916 Guardian 9.2 cu. ft. refrigerator, 1958 Frigidaire
14.2 cu. ft. model FP-142-58 and 1997 20 cu. ft.
Frigidaire model FRS200QRC: Frigidaire Home Products.
1970 Kenmore 16.3 cu. ft. model W46H60740N: Sears
Catalog.
Clothes Washer
1911 Thor Electric Home Laundry Machine No. 1-1/2:
Carnegie Library of Pittsburgh, Science and Technology
Department. 1956 GE model and 1970 GE model WWA8400L:
Life, June 26, 1970. 1997 GE model WBSR
1060T: Dallas-area retailer.
Clothes Dryer
1940 GE model AD-3: Friday Historical Business
Archives. 1956 GE model and 1970 GE model DDE8100L:
Life, June 26, 1970. 1997 GE model DWXR473
E/G: Dallas-area retailer.
Page 9
Dry-Cleaning
a Dress
Base price for dry-cleaning a plain dress (no
pleats): International Fabricare Institute.
Man’s
Suit
Hart Schaffner & Marx suit. Dallas retailers,
Hart Marx, History Channel.
Levi’s
Levi Strauss & Co.; Dallas-area retailers.
Page 10
The Share for
Food, Clothing and Shelter
U.S. Department of Labor (“How Family Spending
Has Changed in the U.S.”; Consumer Expenditure
Survey).
Page 11
Kings of the
Road
Dallas Ford dealers; Lichty 1995; Ward’s
Automotive Reports, various issues.
Auto Rental
One week, unlimited mileage, return to same city.
1970 Ford sedan: Life, July 24, 1970.
1997 Ford Taurus: Hertz Corporation.
A Gallon of
Gasoline
American Petroleum Institute 1995.
Page 12
Movie Ticket
Motion Picture Association of America; U.S. Bureau
of the Census (Historical Statistics of the
United States, Colonial Times to 1970).
Woman’s
Haircut
Museum of Cosmetology Arts and Sciences, St. Louis,
Mo.
Soft Contacts
1971: Consumer Reports, May 1972. 1997:
Lens Express, Inc.
Page 13
1,000 Miles
of Air Travel
Air travel is 1,000 miles domestic average price.
Air Transport Association of America; U.S. Bureau
of the Census (Historical Statistics of the
United States, Colonial Times to 1970; Statistical
Abstract of the United States, various issues).
Coast-to-Coast
Flight
One-way, New York to Los Angeles. Cherington 1958,
American Airlines.
7-Day Caribbean
Cruise
Miami port-of-origin, excluding airfare: Carnival
Cruise Lines.
Page 14
University
Education
University of Texas at Austin, full-time undergraduate
tuition and fees for a state resident for academic
year: UT–Austin, Office of Institutional
Studies. U.S. public and private institution full-time
undergraduate average tuition and fees for academic
year at 4-year universities (state resident, where
applicable): U.S. Department of Education, National
Center for Education Statistics.
Page 15
Food on the
Go:
Snacks
Coca-Cola Company, Frito-Lay, Inc., Hershey Foods
Corporation, Wm. Wrigley Jr. Company.
Big Mac
McDonald’s Corporation.
Large Pepperoni
Pizza
Pizza Hut Totally New Pizzas. Prices are estimates.
Page 16
Color Television
1954 RCA 12-inch model LT-100 and 1971 RCA 25-inch
model FQ545: Friday Historical Business Archives.
1997 RCA 25-inch model F25209WT: Dallas-area retailer.
VCR
1972: Radio Electronics, July 1972. 1978:
Consumer Reports, September 1978. 1984:
Sears Catalog. 1990: Sears Catalog average. 1997:
J. C. Penney Catalog average.
Home Movie
Camera
1960 Bell & Howell Electric Eye Family Camera:
Ritz Collectibles. 1977 RCA BW002: Friday Historical
Business Archives. 1997 RCA Pro 854: Thomson Consumer
Electronics, Inc.
Page 17
Calculating
Devices
1916 Burroughs Class Three adding machine: Charles
Babbage Institute. 1952 Frederick Post Co. Versalog
slide rule: Sphere Research Corp. 1972 TI-2500
calculator and 1996 TI-1795 calculator: Texas
Instruments.
Microwave
Oven
1997 model is Amana model FBG623T: Amana Appliances.
Cellular Phone
1984 Motorola DynaTAC 8000X portable phone and
1997 Motorola StarTAC 6000: Motorola, Inc.
Pages 18 and 19
Sale! 10%-90%
Off!
The Work-Time Cost of Products, Today Versus Yesterday
Early camcorder is Realistic model 150 Compact
MovieCorder. Mattress is twin-size. Computing
comparisons are based on minutes per MIPS, 1997
versus 1984. Phone call is 3-minute coast-to-coast
call.
Page 19
Computer
1944 IBM Mark I, 1970 IBM System/ 370 model 165,
1984 IBM PC AT and 1997 IBM Aptiva model E24:
International Business Machines Corporation.
Page 21
3-Minute Coast-to-Coast
Phone Call
Daytime, New York to San Francisco. AT&T Corporate
Archives; U.S. Bureau of the Census (Historical
Statistics of the United States, Colonial Times
to 1970; Statistical Abstract of the
United States).
Page 22
The Bounty
of Time Well Spent:
Household Ownership and Use of Products
American Association of Home Appliance Manufacturers;
Cellular Telephone Industry Association; Electrical
Merchandising, various issues; Information
Please Almanac; Public Roads Administration;
Television Bureau of Advertising; U.S. Bureau
of the Census (Census of Housing; Current
Population Reports; Historical Statistics of the
United States, Colonial Times to 1970; Statistical
Abstract of the United States); U.S. Department
of Energy; U.S. Department of Transportation.
Photo Credits
See Exhibit Notes
and Data Sources for product details.
Page 4, 1904
Westinghouse factory, Library of Congress, Motion
Picture, Broadcasting, and Recorded Sound Division.
Page 6, 1920 house, Library of Congress,
Prints and Photographs Division.
Page 8, 1910 range, 1913 dishwasher and
1940 clothes dryer, Friday Historical Business
Archives, Louisville, Ky.; 1916 refrigerator,
Frigidaire Home Products; 1911 clothes washer,
Ron Lutz, Lee Maxwell Washing Machine Museum,
Eaton, Colo.
Page 11, all cars, courtesy of Ford Motor
Company.
Page 12, 1954 movie theater, Sony Loews
Theatres; 1920 woman’s haircut, Museum of
Cosmetology Arts and Sciences, St. Louis, Mo.
Page 13, 1930 plane and airport, C. R.
Smith American Airlines Museum; cruise, image
copyright © 1997 PhotoDisc, Inc.
Page 15, hamburger, McDonald’s
Corporation; pizza, Pizza Hut Totally New Pizzas.
Page 16, 1954 color television, Friday
Historical Business Archives, Louisville, Ky.;
1997 VCR, used by permission of Thomson Consumer
Electronics; 1960 home movie camera, The Sears
Roebuck Co.
Page 17, 1952 slide rule supplied by
David Truly; 1972 and 1996 calculators, courtesy
of Texas Instruments; 1947 microwave oven, Amana
Appliances; 1984 cellular phone, Motorola Museum
of Electronics © Motorola, Inc.
Page 19, all computers, courtesy of International
Business Machines Corporation. Unauthorized use
not permitted.
Page 20, auto, courtesy of Ford Motor
Company.
Page 20, radio, and page 21,
telephone, Library of Congress, Prints and Photographs
Division.
About the Dallas Fed
The Federal Reserve Bank
of Dallas is one of 12 regional Federal Reserve
Banks in the United States. Together with the
Board of Governors in Washington, D.C., these
organizations form the Federal Reserve System
and function as the nation's central bank. The
System's basic purpose is to provide a flow of
money and credit that will foster orderly economic
growth and a stable dollar. In addition, Federal
Reserve Banks supervise banks and bank holding
companies and provide certain financial services
to the banking industry, the federal government
and the public.
Since 1914, the Federal
Reserve Bank of Dallas has served the financial
institutions in the Eleventh District. The Eleventh
District encompasses 350,000 square miles and
comprises the state of Texas, northern Louisiana
and southern New Mexico. The three branch offices
of the Federal Reserve Bank of Dallas are in El
Paso, Houston and San Antonio.
Federal Reserve Bank of
Dallas
2200 North Pearl Street
Dallas, Texas 75201
(214) 922-6000
El Paso Branch
301 East Main Street
El Paso, Texas 79901
(915) 544-4730
Houston Branch
1701 San Jacinto Street
Houston, Texas 77002
(713) 659-4433
San Antonio Branch
126 East Nueva Street
San Antonio, Texas 78204
(210) 978-1200
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