We're all dancing as fast as we can.

That may be why rising stock prices and strong home values have done little to improve the public mood. Worry abounds.

The best explanation to date comes from a new book written by a mother and daughter team, Elizabeth Warren and Amelia Warren Tyagi.   The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke (Basic Books, HB, $26) shows how and why the two-income family has reduced family financial security rather than increased it. It also points out how incredibly fast this social and economic transformation has occurred--- only 25 years.

As recently as 1976, they point out, a married mother was twice as likely to stay at home as to work full-time. By 2000 the situation was virtually reversed. The change is even more dramatic for mothers with very young children: "a woman with a three-month-old infant is more likely," they write, "to be working outside the home than was a 1960s woman with a five-year-old child."

A law passed around the same time, the 1975 Equal Credit Opportunity Act, required lenders to recognize the income of women in mortgage applications, ending decades when it was not considered. Before the law was passed, the primary earners' income determined how much could be borrowed. The secondary earners' income was "extra." After the law was passed, lenders could lend more.

They did.  

More mortgage lending fueled a "bidding war" for houses in safe neighborhoods with good schools, driving up the price of housing. In the same process, other committed expenses also increased. One-car families became two-car families. Two-earner families had to pay more for preschool and childcare. The second earner increased income but also paid at higher tax rates.

While all this is part of a familiar litany--- the chorus of books questioning the true benefits of having a second worker in the family---Professor Warren (she teaches at Harvard Law School) and her management consultant daughter have added a significant new twist. They've compared the uncommitted income of the single earner family of the 1970's with the uncommitted income of today's two-earner family.

They found income was up. But flexibility was down. The two earner family has no more uncommitted income--- what economists call discretionary income--- than the one-earner family of the past. While 46 percent of the single-earner family's income of the 1970s was discretionary, only 25 percent of the two-earner family's income of the 2000s was discretionary.   Since "discretionary" income pays for things like food and clothing, we're not talking about money to fritter away.

Basically, the modern family has a lot less "wiggle-room" than the Leave It To Beaver family of the past. Skeptics should consider the table below comparing the two families.

Comparing Two Families
This table compares the expenses of a one-earner family of the 1970's with the comparable expenses of a contemporary two-earner family. The income and expense figures for the 1970's have been adjusted for inflation.
Item Single Income Family, early 1970s Dual-income family, early 2000s
Husband's income $38,700 $39,000
Wife's income $                 0 $28,800
Total Family Income $38,700 $67,800
Tax Rate (percent income, local, state, federal) 24%   33%  
Taxes $9,386 $22,256
After-tax Income $29,314 $45,544
Major fixed expenses      
         Home mortgage $5,309 $8,978
         Day care (7 year old) $0 $4,354
         Pre School (3 year old) $0 $5,321
         Health Insurance $1,027 $1,653
         Automobile, Car 1 $5,144 $4,097
         Automobile, Car 2 $0 $4,097
Total fixed expenses $11,480 $28,499
Discretionary income (food, clothing, utilities, etc.) $17,834 $17,045
Source: Warren & Tyagi, The Two-Income Trap, pg 208

Note that none of these new or enlarged fixed expenses represent commitments to the new levels of unsurpassed luxury we read about in magazine advertisements. The authors point out that the median owner-occupied home grew from 5.7 rooms in 1975 to 6.1 rooms by the late 1990s. That's less than half a room---more likely a second bathroom than a flashy media room or wine cellar. Ditto spending on cars--- they found that families today spend less per car than they did in the 1970s. Instead, they have two cars to get to two jobs.

At the same time, the probability of job loss in any year has doubled. While the single earner family of the 1970s had a 2.5 percent chance of job loss, the two-earner family of the 2000s has a 6.3 percent chance of job loss. Most of that increase is the simple addition of the second earner but the stress effect comes through loud and clear--- today's two-earner family is more vulnerable, not less.

That, in turn, is why the worry won't go away. It's also why the bankruptcy rate is soaring--- the authors point out that 87 percent of all personal bankruptcies can be traced to three events: job loss, medical problems, and divorce or separation. While lenders continue to send credit cards and blank checks to anything with a pulse and complain about our declining moral fiber, the real causes of personal bankruptcy are the same today as they were 25 years ago.

Given the pressures, I'd say working people are doing pretty well.

Related Columns on the Web:

May 25, 2003: Wedded To Even More Tax

May 29, 2003: A Generation Gap That's Alive and Well

June 10, 2003: Aging Is a Constant: Circumstances Aren't