Analysis: Middle-Class Families Thriving in Expensive U.S. Cities
According to a recent economic analysis, middle- and working-class families are experiencing a high standard of living in some of the most expensive cities in the United States. The study, conducted by the Ludwig Institute for Shared Economic Prosperity (LISEP), challenges the common belief that living in costly regions hinders financial well-being.
The report highlights that despite the exorbitant cost of living in cities like San Francisco, middle- and working-class families in the Bay Area are faring well due to higher-than-average wages. The analysis, which examined 50 major U.S. cities, revealed that the Bay Area emerged as the top-performing region for these households.
However, the study also sheds light on the broader economic challenges faced by the majority of Americans. LISEP noted that nearly 60% of the population fails to meet their basic needs, with an average income shortfall of almost $14,000 in 2022. This underscores the difficulties many households are encountering amidst two years of escalating inflation, resulting in increased costs for essentials such as food and rent.
"For middle- and lower-income Americans, regardless of their location within the United States, the financial situation remains challenging," stated Gene Ludwig, the chairman of LISEP, in an interview with CBS MoneyWatch.
Examining the Relationship Between Wages and Cost of Living
Understanding the impact of wages on the cost of living at a regional level is crucial because our lives are primarily influenced by our local surroundings, according to Ludwig.
While the Bay Area has one of the highest costs of living in the United States, it also offers a more diverse range of job opportunities compared to other cities. This includes a larger selection of upper-middle-income jobs. On the other hand, cities where median household incomes are struggling to keep up tend to have fewer job prospects.
For instance, in cities like Las Vegas and Fresno, there is a higher concentration of low-wage and middle-income jobs, while the number of higher-paying middle-income jobs is relatively scarce, as Ludwig pointed out.
This analysis was conducted using city-specific data, which took into account the cost of living for households, including essential expenses like housing and food. It also considered the earnings of both full-time and part-time workers, as well as individuals who are unemployed and actively seeking employment.
The Unequal Impact of Inflation
LISEP, which was established by Ludwig in 2019, aims to monitor economic indicators of well-being for middle- and working-class Americans, such as wages and unemployment rates.
The Impact of Inflation on U.S. Households
While the U.S. government tracks such data, it can be argued that the measures often don't accurately reflect the economic situation for millions of U.S. households — including the impact of inflation, which is a sore point for many Americans after two years of bruising price hikes.
Inflation has hit low- and middle-class Americans particularly hard, something the national measure of inflation isn't capturing. That's because the Consumer Price Index (CPI), a basket of goods and services, tracks some items that may not have much bearing on the lives of middle-class families, and thus doesn't accurately reflect their experiences.
Housing as measured by the CPI has increased 54%, but an analysis found that the typical rent for middle- and lower-income households has soared by almost three times that level, at 149%. [source]
"In the last 20 years, inflation for middle- and lower-income Americans has been higher than it has been for upper-income Americans," said an expert. "Wage growth hasn't kept pace such that you are worse off than you were 20 years ago."
Sharing the wealth generated from a growing U.S. economy is essential to maintaining the middle class and creating a stable society, according to the expert. That can help middle- and low-income Americans "share in the American dream." "Unfortunately, it's going in the wrong direction."
