The Great Transformation
The nature of the transformation is highlighted by the 50 fold change in the relative price of a television set of a constant quality and a day in a hospital over the last generation. While it is often observed that wages for median workers have stagnated, this obscures an important aspect of what is occurring. Measured via items such as appliances or clothing or telephone services, where productivity growth has been rapid, wages have actually risen rapidly over the last generation. The problem is that they have stagnated or fallen measured relative to the price of food, housing, healthcare, energy and education.
Pointer from Mark Thoma.
Actually, I think that the trends in housing and energy costs are not so clear. In housing, size and quality have gone up, and it seems to me that the variation in cost from place to place is what has gone up (the cost of housing in Detroit is quite low these days). In energy, there is too much annual volatility to pick out a clear trend.
That leaves education and health care. There, the question I would raise is how to separate necessary consumption from status goods. I heard recently that Chris Whittle has started a K-12 school in New York with tuition of $40,000 a year–and the person who told me this said that $40 K is actually the going rate. I submit that this is a status good, as are degrees from top colleges. In health care, some of the scanning-just-to-see, surgical repair of baby-boomer knees, and futile end-of-life care also may fall into the category of status goods.