ICYMI: New Analysis Examines What Economic Averages Miss About Wages, Housing, and Affordability

While real earnings have increased since 2019, recent slowdowns in earnings growth, volatility in earnings and employment, housing costs, and expense shocks help explain why affordability remains a concern for American households.

WASHINGTON, D.C. - A new research paper, "What the Averages and Medians Hide: The Reality of Wages, Housing, and Affordability," by economist Dr. Alexei Alexandrov examines the gap between relatively strong aggregate economic statistics, strong consumer spending and performance, and Americans' persistent sentiment on economic outlook and concerns about affordability. While real earnings have increased since 2019, Dr. Alexandrov finds that earnings growth has slowed sharply and that averages conceal dramatically different experiences depending on workers' employment stability, housing status, and financial cushion.

To read the full paper, click HERE.

Key Findings

• After experiencing wage increases since 2019 across all income levels, real wage growth has tapered this year. Real earnings have increased since 2019, but growth remains below the pre-pandemic trend and has been roughly flat over the past year. In a typical year, about half of workers do not receive a real wage increase.
• Lower-wage workers face greater employment volatility. In any given year, more than 15 percent of workers in the lowest-wage quartile become unemployed or leave the labor force, compared with approximately five percent of workers in the highest-wage quartile.
• Housing costs look very different depending on whether you own, rent, or are trying to buy. Homeowners, particularly with fixed-rate mortgages, have experienced substantially lower out-of-pocket housing cost increases than official inflation measures suggest. Meanwhile, renters face costs closer to official measures, while aspiring homeowners face substantially higher costs due to rising home prices and mortgage rates.
• Household debt has remained relatively stable. Real household debt has remained close to flat since 2019 and has declined relative to disposable income.
• Unexpected expenses hit households across the income spectrum-but lower-income families have far less room to absorb them. As Dr. Alexandrov notes, "Cost shocks (like unexpected healthcare, home, or car expenditures) appear to be about as likely for different income segments, but since lower income workers have low savings, and on average spend more than they earn, they don't have any cushion for these shocks, except for short or long-term borrowing, primarily on credit cards."
• Despite an increase in the perceived prevalence of tipping, tipping does not appear to have translated into faster earnings growth for tipped workers as compared to their peers. Wage growth in industries where tipping has expanded was broadly comparable to growth in similar industries where tipping was already common or did not expand as much-suggesting that increased tipping may have substituted for employer-paid wage increases.

What They're Saying

As Dr. Alexanrov notes:

"[R]elatively optimistic aggregate statistics showing earnings growing faster than inflation since 2019 (before the pandemic) mask many important nuances, explaining at least some of the Americans' concerns about affordability and rising costs."

What This Means for Policymakers

The paper highlights the importance of looking beyond aggregate economic indicators to understand household financial conditions. Millions of households' face income volatility and unexpected expenses even when the broader economy appears strong, and lower-income households are particularly likely to lack the savings needed to absorb those shocks.

Policymakers should therefore distinguish between financial shocks, and the tools households use to absorb them. Job losses, income disruptions and unexpected expenses can create financial strain; savings and access to responsible credit can help households manage those pressures. Policies aimed at improving affordability should be careful not to confuse the shock with the shock absorber.

About the Author

Dr. Alexandrov is an economist with leadership experience in federal economic research, including senior roles at the Federal Housing Finance Agency and the Consumer Financial Protection Bureau. His work on consumer finance, housing markets, and household behavior is widely published and cited.

Looking Back

In February, Alexandrov released a white paper, "Affordability and Household Expenses, Big and Small: Evidence from Public Federal Data 2013-2024,"analyzing how American household income and expenses have evolved over the past decade, examining the key areas that today's consumers are struggling to afford, and key considerations for policymakers.

The findings underscored that rising affordability pressures are concentrated in four major categories: housing, healthcare, food, and auto. It also highlighted how these costs are most burdensome for lower income consumers, because, while real incomes kept pace with rising expenses, consumers in the bottom two quintiles consistently spent more than they earned.

CBA Advocacy

• In a February edition of the Point of Impact quarterly letter, CBA President and CEO Lindsey Johnson highlighted Alexandrov's research, while also conveying how credit cards, home equity lines and other bank products can serve as short-term "shock absorbers," helping families manage unexpected expenses while policymakers focus on addressing the underlying causes of rising costs. To read the full letter, click HERE.
• In March, CBA published A Well-Managed and Necessary Source of Credit: The State of America's Credit Cards, documenting trends in balances, repayment behavior, access to credit and the role credit cards play in helping households manage unexpected expenses. To read the full analysis, click HERE.
• In June, CBA President and CEO Lindsey Johnson testified before the Senate Banking Committee at its Affordability Agenda hearing, emphasizing the importance of competition, access to credit and responsible financial products while calling for policymakers to address the underlying drivers of rising costs. To read Johnson's testimony, click HERE.
• Ahead of the hearing, CBA highlighted member-bank programs supporting financial inclusion, affordable banking, community investment and economic resilience as part of its broader Spotlight on Affordability effort in the Main Street Ledger newsletter. To learn more, click HERE.
• In July, CBA released a consumer-facing fact sheet on credit cards and affordability, explaining how credit cards help families bridge unexpected expenses, build credit and protect consumers, while examining the potential consequences of government-imposed interest-rate caps. To read the fact sheet, click HERE.