The Two-Income Trap (11 page)

In addition to playing the role of backup earner, the stay-at-home mother plays another critical
economic
role: backup caregiver. The full-time homemaker does more than change diapers and check homework; she is available to provide extra care for
anyone
—child or adult—who needs it. She is on hand to care for an elderly relative who can no longer take care of himself. Three out of four caregivers to the disabled elderly (excluding husbands and wives) are daughters, daughters-in-law, or other female relatives and friends (such as nieces or granddaughters). A generation ago the majority of these women did not work outside the home.
¹¹
If Granddad has become too frail to manage on his own, the stay-at-home mother is available for the myriad tasks not covered by Medicare. She can help him dress every morning, drive him to the doctor’s office, balance his checkbook, or just keep him company. And because she is at home full-time, she can perform these tasks without taking time off from her own job or forcing her family to live without a paycheck they had been counting on.

A mother who has gone into the workplace brings home a paycheck, but she forfeits the economic value of her backup role. So long
as nothing goes wrong, the tradeoff is a simple choice between two viable alternatives. Some families prefer to have Mom at home and are willing to live with less money; others accommodate a working mother and enjoy a richer lifestyle. When trouble strikes, however, the family learns that the two choices may not have been as equivalent as they had seemed. Only one leaves the family with a safety net.

Not long after Gabe was born, Carmen was back in the hospital, this time for an infection. She was run down, worried about how her family would care for Gabe, and frantic over the family’s bills. “My fever was spiking and all I was thinking about was what bills I had to pay. I managed to get them to let me out of the hospital.”

Eight months after Gabe was born, the Ramirez family was behind on the utilities bills. “I got one of those pink notices to disconnect [the power]. I was so scared—I need that electricity to pump the air into my kid’s lungs.” In the early spring of 2001, a creditor showed up at the police station where Mike is assigned, threatening to repossess the family minivan. The room fell quiet as the other police officers determinedly looked away, trying to give Mike some privacy as he pleaded with the man to give him a little more time to pay. The next day, Mike and Carmen went to see a lawyer. After twenty minutes with the paralegal, they signed the papers to file for bankruptcy.

 

Not every two-income family will face the financial crisis that hit Mike and Carmen. Whether they do depends in large part on how they spend the second salary. The single-breadwinner family, by definition, plans its financial commitments geared to a single income. A stay-at-home mother is a contingent worker, called on only in an emergency; in ordinary times, the family lives on one paycheck. In theory, the two-income family could take the same approach. They could spend one paycheck and keep the second one in reserve. If disaster strikes, they will have ample savings to cushion any blow.

The two-income family has another budgeting alternative. They can do exactly what the over-consumption camp claims they do—blow that second paycheck on expensive vacations, gadgets for the house, brand-name clothes, and dozens of other things they “don’t really need.” While this strategy might make the finger-waggers sputter with indignation, these families would actually be just as prepared for an emergency as their one-income counterparts. If something goes wrong, they can simply stop purchasing the extras without any serious harm to the family’s standard of living, while Mom returns to her role as backup earner or caregiver. If Dad loses his job, Mom’s income will be reallocated to cover the family’s living expenses while her husband looks for a job.

Over the past 25 years, mothers poured into the workplace, but they did not fritter away their paychecks on buying sprees that could be abandoned at the first sign of trouble. Nor did they lock that money in the bank. Millions of two-income families used that second income to purchase opportunities for their children—a home in a safe neighborhood with good schools, a comprehensive health insurance policy, two reliable cars, preschool, and college tuition. They made long-term commitments to ongoing expenses—and they counted on both incomes to make ends meet.

Justin and Kimberly, the modern two-earner family we introduced in chapter 2, illustrate the point. If Justin lost his $39,000-a-year job, Kimberly would still be working. She would be earning $28,800 on average, which is considerably more than her counterpart Susan would have earned a generation earlier. With Justin’s unemployment check, the couple’s annual earnings would be $48,300, which would put them well ahead of Tom and Susan’s post-layoff situation. But there is one critical difference: Tom and Susan were accustomed to living on less than $39,000 a year, whereas Justin and Kimberly had built their lives around an income of nearly $68,000 a year. The shortfall for Justin and Kimberly is much more severe.

Compared with a one-income couple, Justin and Kimberly are very poorly positioned to absorb a drop in income. As we showed in the previous chapter, their fixed monthly expenses are two and a half times
higher than Tom and Susan’s were back in 1973 (once again, all numbers are adjusted for inflation), so they have less discretionary money left over even when they are both fully employed. Without Justin’s paycheck, the modern couple doesn’t have a prayer of making ends meet.

Source:
Analysis of Consumer Expenditure Survey. For further discussion of the calculation of discretionary income for a one-income family in the 1970s and a two-income family in the 2000s, see chapter 2.

FIGURE 3.1 Income drop when husband loses job

Even if Justin finds a job within a few months, the family will continue to operate from a deficit, since there will be no
extra
income available to pay off the debts that mounted up while his paycheck was gone. This is in sharp contrast to Tom and Susan: If the former stay-at-home mother stays in the workforce temporarily, the couple should regain its financial footing within a few months of Tom’s reemployment.

Proponents of the Over-Consumption Myth would be quick to point out that Justin and Kimberly don’t actually
need
$68,000 a year and that their family
should
be able to get by on $48,000 a year. After all, Tom and Susan seemed to be getting along just fine—and holding
on to their spot in the middle class—on $38,700 a generation ago. Be that as it may, Justin and Kimberly have signed binding contracts and long-term mortgages, made commitments and promises that depended on all $68,000 of income. They could (and in all likelihood would) cut back around the edges. They might cancel cable or eliminate take-out dinners; they could postpone replacing the stained carpet and cross beer and soda off the shopping list.
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But the effect of such belt-tightening would be modest at best. They cannot make up for the almost $20,000 hole in the family’s budget by eating less or forgoing a new pair of sneakers. In order to pull back to a $48,000 budget, Justin and Kimberly would need to sell their home, trade in their car, pull their younger child out of preschool, and enroll their older son in a lower-cost after-school day-care center—a process that would take months to accomplish. Moreover, they would be unlikely to take such draconian measures until they were already deep in financial trouble and forced to admit that the lives they once lived were gone forever.

The finger-waggers might not be willing to exonerate Justin and Kimberly, but it is important to notice something about their expenditures that turns the standard financial analysis on its head. Justin and Kimberly are vulnerable precisely because they did
not
over-consume on trinkets. They are vulnerable because they made long-term commitments to what most would consider sensible family purchases: housing, education, health insurance. They probably don’t want to hear it right now, but Justin and Kimberly would be more secure financially if they had whooped off her entire salary on big-screen TVs and trips to the Bahamas, because those purchases do not require an ongoing financial commitment.

Should Justin and Kimberly have saved one income, locking it in the bank for a rainy day? Maybe, but even here the picture must be etched in shades of gray, rather than black and white. Money in the bank is great, but so are college degrees, decent medical care, and homes in good school districts. Indeed, Kimberly might ask the over-consumption critics and the financial planners what would be the point of working if she couldn’t spend the money to buy better lives for her children? She
wasn’t sending her kids to day care every day just so she could go on a cruise or plan some glorious retirement for herself and her husband. Cash savings, money for retirement, treats, and vacations could come later. This couple decided that their children needed a good home
now,
good day care
now,
and good health insurance
now
. Many parents—and even a fair number of financial analysts—would agree with them.

So how did families get sucked into the Two-Income Trap? The answer is unexpectedly simple:
No one saw it coming.

The politics that surrounded women’s collective decision to migrate into the workforce are a study in misdirection. On the left, the women’s movement was battling for equal pay and equal opportunity, and any suggestion that the family might be better off with Mother at home was discounted as reactionary chauvinism. On the right, conservative commentators accused working mothers of everything from child abandonment to defying the laws of nature. The atmosphere was far too charged for any rational assessment of the financial consequences of sending both spouses into the workforce.

The massive miscalculation ensued because
both
sides of the political spectrum discounted the financial value of the stay-at-home mother. Feminist leader Betty Friedan scoffed at the economic role of the homemaker: “[T]he really important role that women serve as housewives is to buy more things for the house. . . . Somehow, somewhere, someone must have figured out that women will buy more things if they are kept in the underused, nameless-yearning, energy-to-get-rid-of state of being housewives.”
¹³

Feminists assumed that women’s entry into the workforce entailed no real costs—only benefits. Conservatives, for their part, slavishly touted the emotional benefits that a stay-at-home mother provides to her children and fretted over “who will rock the cradle” when mothers abandon their homes.
¹⁴
There was no room in
either
worldview for the capable, resourceful mother who might spend her days devoted to
the roles of wife and mother, but who could, if necessary, rise to the occasion and dive headlong into the workforce to support her family. No one saw the stay-at-home mom as the family’s safety net.

Moreover, it was easy for each family to see income going up, but it was very hard to foresee what would happen if something went wrong. When most families plan their futures and pencil in their budgets, they concentrate on what is most immediate. They look at the paychecks coming in, the mortgage going out, the month-to-month fluctuations in the checking account. Except for those disquieting moments when they take out a life insurance policy or learn that a friend has lost his job, most don’t notice the growing vulnerability that has seeped into their lives and stolen their security.

Must mothers give up their jobs and head back home if they are to escape the Two-Income Trap? We suspect that at least a few conservative commentators will draw exactly that conclusion from these pages. But as two working mothers, we confess to deep resistance to calling for such a move. We remain dedicated to the best part of the feminist movement—the rock-solid belief that women who want to work should have every opportunity to do so. But personal politics aren’t the point here. Such a mass exodus from workplace to home is about as likely as the revival of the horse-drawn buggy. Social and political forces have changed the shape of women’s expectations and their role within the family. New information about the macroeconomic implications of their entry into the workforce is unlikely to change much.

Even if women listened hard to those admonishing them to remain at home, most could not do it. Such advice ignores the fact that families are caught in a trap. Any individual family that chooses to drop down to one income will be immediately penalized, while those who keep both parents in the workforce will gain a strategic advantage. Sure, they may understand that living on two incomes increases their risk of economic collapse, but risks dwell in the future—and the kids
have needs that must be met today. Besides, in many families, it is far too late to contemplate pulling Mom out of the workforce. For the millions of parents who have already committed Mom’s income to the mortgage and car payments, the time for such second thoughts is long past. If she leaves her job, these families stand to lose everything.