Cost of Living Is Not Just About Inflation: It's Time For A Historic Shift In Wages.

Inflation, housing costs, food costs, but wages remain stagnant. What's really going on?

This morning I read a NYT article about how expensive it is to live in San Francisco. The couple interviewed is complaining that their $370,000 combined salary is not enough to find a nice apartment.

Simultaneously I read that 7% of retirees are unretiring in the recent AARP measure, and about 12% of seniors age 65+ have already returned or plan to return in 2026.

Why are retirees going back to work? They simply cannot afford the costs of healthcare, food, and energy.

Given that we advise companies on leadership and HR and I’m reading hundreds of articles about the high cost of living (particularly housing), I decided to dig in. fAnd as a micro-economist (we talk with large employers all day), I wanted to share my thoughts on what we, as business leaders, can do.

First, let me say this. I’ve lived here a long time and this feels like an instant replay of the early 2000s, when internet millionaires roamed the streets. Housing was exorbitant then also, but I want a long term look.

As I explored I found that this “high cost of living” has been almost 50 years in coming.

Here’s the data.

1. US Purchasing Power Has Been Dropping For Years

First, if you look at wages vs. inflation over the last 20-30 years you can see that real (after inflation) purchasing power in the US is dropping fast. Wages, measured after inflation, have only gone up by a few percent in the last ten years, while inflation has more or less soared.

Just to check, I looked at St Louis Fed, which looks pretty similar. This is a chart of “Purchasing Power” and you can see how it went down almost 40% over a similar period.

2. US Productivity Has Gone Up (as has GDP) For Years

Well I understand this issue, since I work in tech: over the last 30 years there has been a ton of technology invented, so maybe the problem is simply productivity is going up and CEOs and shareholders are “hoarding” the benefits and not passing them on to employees.

THis chart shows dramatically that productivity went up by 14% (this is a lot) while wages went up by 2%. So 12% or so of US economic productivity did NOT go to wages, it went elsewhere.

GDP Has been going up too, as the following chart shows.