Everyone is talking about affordability – and making the same mistake

Affordability – or the lack of it – is dominating the public discourse. “Affordability, affordability, affordability: Democrats’ new winning formula,” proclaims Politico. “Trump tries to seize ‘affordability’ message,” reports The New York Times. Election results in New Jersey, Virginia, New York and elsewhere showed that voters are responding to candidates who speak directly to the cost of living.

Today’s affordability debate, however, focuses almost entirely on prices, as if the only way to make life affordable is to make things cheaper. But that approach misses the bigger picture. Affordability depends on both prices and wages. The roots of today’s affordability crisis actually lie not in recent price spikes, but in the long-term suppression of workers’ pay. 

If pay for typical workers had kept pace with productivity over the past 45 years, their paychecks today would be roughly 40% larger.

For more than four decades, employers have been actively suppressing the wages of working people, so that corporate managers and owners can claim an ever-larger share of the income generated by what workers produce. Government policies facilitated these efforts. Policymakers allowed labor standards such as the minimum wage to erode (and reduced enforcement of the standards we do have), blocked adequate protections for workers’ right to organize and promoted macroeconomic policy that allowed unemployment to remain too high for long periods, undermining workers’ leverage.

One way to see this shift is by comparing the growth in workers’ pay to the growth in productivity, which measures how much income is generated on average in an hour of work. If pay for typical workers had kept pace with productivity over the past 45 years, their paychecks today would be roughly 40% larger. That wage shortfall is what is really driving America’s affordability crisis – and reversing it must be central to any serious affordability agenda. 

Policymakers who only look at prices and ignore paychecks are missing a huge set of affordability policy levers. Stronger labor law, which helps workers’ ability to unionize and bargain collectively, is affordability policy. A higher minimum wage is affordability policy. Macroeconomic policy that keeps unemployment low and protects workers’ bargaining power is affordability policy. A durable social safety net that keeps families from falling into poverty when they lose a job or get sick is affordability policy. 

These reforms are also incredibly popular. Unions, for example, are as popular as they have been in decades – with particularly strong support among younger people.  Americans overwhelmingly back higher minimum wages. There is electoral gold to be mined by policymakers who show voters that they are pursuing policies that will make life more affordable by raising wages. 

That’s not to dismiss efforts on the price side of the affordability equation. Antimonopoly policies can help keep large corporations from inflating prices. Building affordable housing can help reduce housing costs. Subsidies for – or public provision of – necessities such as health care, child care and transportation can provide families a crucial buffer. Those are all essential efforts.

As lawmakers grapple with the cost of living, they need to remind Americans – again and again – that pay is a policy choice.

But if policymakers promise they will lower prices enough to ensure affordability for U.S. families, they are setting voters up for disappointment. The vast majority of prices will never come down. We live in a mostly capitalist economy where prices are set by millions of private actors. Micromanaging them isn’t possible or even desirable in most cases. 

What policy can do is ensure that the labor market delivers rising incomes: through better labor standards and collective bargaining rights, through macroeconomic policy that helps ensure a full employment economy and boosts workers’ leverage and through social policies that fill the gaps the market leaves behind.  

Research consistently finds that voters blame inflation on government policy but take personal responsibility for what happens to their wages – good or bad. This perception is backwards, and especially so in the post-pandemic recovery. The inflation of the early 2020s was driven almost entirely by the Covid-19 pandemic and global conflicts, not U.S. government policy, and it receded as those shocks eased. By contrast, the rapid wage growth during the same period was driven almost entirely by a deliberate policy decision: using large-scale fiscal stimulus to engineer a rapid recovery from the Covid-19 recession.  

As lawmakers grapple with the cost of living, they need to remind Americans – again and again – that pay is a policy choice. Making life more affordable means not just lowering prices where possible and necessary, but raising wages. True affordability comes when working people earn enough to cover the costs of living with dignity and security.