The Hidden Costs of Being An American Worker

When it comes to buying stuff online, American workers have it made. But when it comes to “mass services” — transportation, housing, education, health insurance, and childcare — American workers are getting fleeced.

Illustration by Van Santen and Bolleurs

The “standard of living” seems like a straightforward concept: Take some measure of the typical income. Compare it to some index of consumer prices. The resulting ratio should give you a snapshot of society’s level of material well-being.

But since the end of the postwar boom, that snapshot — typically based on measures of private, commercial consumption — has come to seem increasingly misleading.

As technical progress has driven down the prices of manufactured goods, the main burden of working-class household expenses has been shifting to what we might call “mass services” — services that are unavoidably collective in nature. Think health insurance and long-term care. Day care and higher education. Transportation and housing.

The lesson of the past few decades — which is especially clear when we compare the United States with other rich countries — is how consistently mass services suffer from high costs and low quality when they’re left in the hands of private, profit-seeking, market-oriented producers. And that is precisely the model that America has gravitated toward in sector after sector.

The Many Costs of a Housing Shortage

Nowhere is this clearer than in housing. It’s the biggest expense in our budgets, and one of the most egregious failures of US public policy. The consequences for working-class living standards are stark: fewer living options, higher costs, more instability, and less freedom.

The story of the us housing market from the Great Recession to COVID-19 is one of a steady ratcheting up of prices. Relative to the average working-class wage, rents increased by almost 8 percent nationally from 2010 to 2019. According to housing researchers, rent levels were unaffordable for people making minimum wage everywhere, even in rural states. In cities where job growth far outpaced housing supply, like Seattle, San Francisco, and Portland, prices rose ever faster, and more middle-income households were cost-burdened as well.

In Portland, Oregon, where shifts in the housing market have proved to be indicative of broader national trends, the number of new jobs was 53 percent greater than the number of newly built housing units over the 2005–19 period, according to housing researcher Michael Anderson.

There are two main reasons for this. The first is that, as in the rest of the country, Portland is almost entirely reliant on private for-profit and nonprofit firms to produce new housing, leaving housing supply at the mercy of volatile financial forces: interest rates, bank balance sheets, and long-term price expectations. Local construction nearly ground to a halt during the global financial crisis and was slow to recover, with only four thousand new permitted homes in Portland’s Multnomah County between 2010 and 2012. In that same period, the county added thirty-two thousand residents.

The second big reason is exclusionary zoning laws, which banned new apartments and even humble duplexes from the vast majority — 77 percent — of Portland’s residential land up until August 2020, ensuring that the only new homes that could be profitably built in most of the city were single-family McMansions. In those locations where apartments were allowed, developers have had to compete for the scarce land, adding further costs to new construction.

Even before the COVID-19 pandemic, Portland’s story was being echoed in cities across the United States. Then the pandemic arrived and turbocharged the us housing shortage. The factors at play are many: lockdowns delayed the construction of new homes, building material prices increased, affluent remote workers moved to cheaper locations and drove up prices, and many millennials and Gen Zers who were previously living with parents or roommates formed households of their own.

A housing shortage is a renter’s nightmare but a dream come true for landlords. The owner of Monarch Investment and Management Group, a large institutional landlord, was ecstatic on a videotaped call to investors last September, uncovered by Bloomberg.

“We have an unprecedented opportunity, at least in my working lifetime, to really press rent. . .. because the country is highly occupied,” boasted owner Bob Nicolls. “Where are people going to go? They can’t go anywhere.”

He was right. In 2021, raw rents were up an average of 17 percent nationwide, according to an analysis by Apartment List. At the top of another analysis was Portland, where rents rose an astonishing 39 percent.

The damage done by skyrocketing rents is obvious: families cut back on essentials like food to cover rent and face displacement, eviction, and homelessness. Groups that disproportionately rent rather than own their homes, like black Americans, who have less inherited family wealth, are hit especially hard. Seniors and people with disabilities relying on fixed incomes also suffer.

In South Florida, where rents have increased about 30 percent in the past year, senior homelessness is on the rise. One elderly woman, Roni Diener, saw her rent rise to $1,500 a month after a $200 increase. With a $900 monthly Social Security check and no savings left, she’s been evicted.

“I haven’t been able to move because I have no place to go. I have no money to go anywhere,” she told local news outlet WPTV. “And I worked all my life. . .. The fact [is] that nobody even cares if I’m dead or alive.”

American renters like Diener largely lack the protections of rent controls, so in a housing shortage, landlords simply charge what the market will bear. Contrast that with Sweden, where the national Swedish Union of Tenants, or Hyresgästföreningen, collectively bargains over the price of rent for private and public housing.

Compounding the lack of protection against arbitrary eviction, working-class Americans also generally lack any guaranteed subsidy — known in many countries as a “housing allowance” — to help cover their rent. The Section 8 Housing Choice Voucher Program, which covers the cost of rent after a tenant spends 30 percent of their income, is not fully funded and leaves sixteen million eligible households without help. If Diener applied for a voucher today, she’d likely encounter a decades-long waiting list.

In Sweden, by contrast, the tenants’ movement has won a fully funded, universal housing allowance for low-income Swedes.

But even with these far-reaching gains, Sweden’s housing situation is far from ideal, according to Paul Williams, the founder of the Center for Public Enterprise and a specialist in social housing policy. “There’s a huge housing shortage in Stockholm,” Williams said. “They have a very similar planning system to the United States, where wealthy people who own homes in low-density neighborhoods are able to block new apartments from being built, whether they be municipal or private.”

“The shortage of housing doesn’t play out in price increases, it plays out in rationing,” he continued. “There’s a ten-year waiting list to move into Stockholm right now. Obviously, when there’s a situation like a ten-year waiting list, what emerges is a black market, where you can pay to jump the line for that housing waitlist. The effect is that it actually does play out in prices. If you have the money, you can move sooner — if not, you wait in line.”

“Demand subsidies, rent control — these things can solve a lot of things, but they can’t solve a shortage,” Williams said.

The tenants’ union in Sweden recognizes this issue. Their top policy goal is now “build more for more people.” Among their plans to get there, they list the following: “Municipalities with a housing shortage must give public housing companies a permanent assignment to maintain a steady pace of construction.” What’s more, they say that “the municipality must arrange for buildable land.”

Public housing in Sweden largely takes the form of what is called social housing, meaning mixed-income, publicly owned housing that is available to all, regardless of income. In other words, a “public option” for housing. This is different from American public housing, which is means-tested and only for the poor.

In dealing with a housing shortage, social housing is a more potent tool than relying on the private sector for a few reasons. First, although private sector developers usually have an incentive to build homes when demand flagrantly exceeds supply — which is good and needed — their interest in maintaining a certain degree of housing shortage inhibits the overall level of construction investment. Financial models for new homebuilding are based on forecasts of future trends in rent. The more homes get built, the lower future rents are expected to be, and homebuilders don’t want to “overbuild” housing to the point at which rents stabilize or fall.

Second, private housing production is prone to booms and busts. A society can tolerate a boom-and-bust cycle for Crocs, but not for a vital social good like housing.

Housing researchers at University College Dublin examined Austria, where one in four homes are social housing. In the wake of the 2008 financial crisis, Austria experienced “one of the weakest and shortest recessions of this period” due to the “counter-cyclical” nature of their social housing. “Austria’s social housing sector just continued to build throughout the recession — they took on risks that the private sector wasn’t willing to take on,” Williams told me. “They kept building housing, and they had more stable prices, and they had a lower unemployment rate. Almost everywhere else, jobs and wages plummeted.”

Finally, private sector developers won’t build housing for people at the bottom of the income ladder because their rents won’t cover the construction and operating costs, let alone offer profit.

Mixed-income social housing has the advantage of allowing for cross-subsidization, sometimes called “solidarity rents,” in which higher rents from higher earners help pay for the costs of the building that lower-income tenants couldn’t cover. Additional subsidies from the government can help expand the number of units for extremely low-income renters.

Williams, who frequently gives presentations to American state legislators interested in social housing, likes to highlight the example of Finland’s Heka, a publicly owned housing developer providing around 20 percent of the housing in Helsinki, with ninety-eight thousand tenants.

Williams calls Heka a “public enterprise” more akin to the Tennessee Valley Authority than a typical government program. Many Americans may not be familiar with the difference.

“The city council is not going around voting to approve funding for a Heka housing project,” Williams says. “Heka is just a company — it’s just that it’s publicly owned and operated, and tenants who live in the buildings are on the board of the company.”

The model seems to be working. While average rents were up 17 percent in the United States in 2021, Finland’s rose by only 0.7 percent, according to a report by Statistics Finland.

According to Williams, Finnish social housing is not only affordable but high quality; many buildings even have saunas. I asked Finnish cost-of-living researcher Lauri Mäkinen if this is true. He perked up and replied, “Yes, especially in the newer apartments. We are crazy about saunas.”

When the Automobile Means Less Freedom

Transportation is the twin sister of housing. Where you can afford to live determines how you get to work, to the store, and everywhere else. And just as with housing, American workers are paying higher costs to get around compared to those in our peer countries.

Take our influx of “super-commuters.” The United States now has more than 4.6 million workers who travel ninety-plus minutes one way for their work daily, emptying their wallets on fuel and fares, spending less time with their families, and increasing pollution. Recent research by economist Chris Salviati found that, from 2010 to 2019, the number of super-commuters increased by 45 percent, while the overall workforce increased by 13 percent. Predictably, super-commuters are concentrated in regions where housing costs have exploded, such as New York City, the San Francisco Bay Area, and Los Angeles.

“This growth is something we expected to see, to some degree, but the magnitude was even bigger than expected,” Salviati told me of his research.

Super-commuters aren’t limited to motorists, though — Salviati found that nearly half live within a thirty-mile radius of where they work, with many relying on inefficient public transit.

“Nobody wants to be spending three hours commuting every day,” Salviati told me. “Folks who are doing this are doing it because they can’t afford to find a reasonable place to live close to where they work.”

The hollowing out of public transit and the domination of sprawling, unaffordable land use patterns have made America a far more automobile-dependent society in the last fifty years. In 1969, 48 percent of children walked to school; as of 2009, that figure had fallen to just 13 percent.

“The reality is, in a huge share of America, there is virtually no choice but to use a car for every daily need, whether that is going to the grocery store, picking up kids from school, or going to your job,” said Yonah Freemark, who studies transportation at the Urban Institute.

This automobile dependency is especially expensive for the lowest-income Americans, those making under $25,000 a year. Freemark’s research found that if these households own a car, they spend 25 percent of their income on transportation, compared to about 5 percent if they don’t own a car.

Car dependency brings with it many hidden costs for working-class Americans. A 2005 Brookings Institution report found that lower-income Philadelphia residents pay over $500 more for the average car than car buyers from higher-income neighborhoods. (The study did not determine why.) Lower-income buyers also face higher interest rates on car loans.

Similarly, auto insurance companies charge working-class Americans pricier premiums. Darrell Owens, a member of the East Bay Transit Riders Union in Berkeley, described a classic catch-22 in an interview. “You don’t have a choice if you don’t live in an area with good public transportation,” Owens said.

“Either you eat [insurance costs], and that’s just more of your income gone, or you take a risk and don’t use that insurance to get to work, and you risk losing your car altogether or being hit with a lot of fees and fines by law enforcement,” said Owens. “This is a really terrible way to live. And it’s kind of insane that we force everybody to live in this way.”

The overlap between car dependency and contact with the criminal justice system extends far beyond insurance. Many state governments punish people for not paying court fees or for minor infractions by taking away their driver’s license.

A 2019 study by Duke University School of Law found that more than 1.2 million North Carolina residents have lost their licenses for “non-driving-related reasons” such as not paying fees and fines, which is a shocking 15 percent of all adult drivers in the state. The study also identified racially disparate sentencing.

“In theory, that might seem like it’s a minor punishment,” said Freemark. “But in reality, when you take somebody’s driver’s license away in a car-dependent place, you’re giving people two choices: number one, lose your job. Like, how do you pick up your kids from school? What is the plan? Literally, what are people supposed to do?”

“The second option is to drive illegally, which exposes you to all these other potential problems, like getting arrested for driving illegally.”

Looking at the evidence, it’s hard not to conclude that a society so dependent on automobiles is a less free society, at least for working-class people.

Freemark makes the case that overwhelming automobile usage is a result of not having alternative options rather than a willful choice. “New Yorkers do not own fewer cars than the average American because they all share an identity of disliking cars,” said Freemark. “They have fewer cars than the average American because they have access to good public transportation and a walkable urban environment.”

Yet it wasn’t so long ago that things were different. Before World War II, the United States had the highest transit ridership of any developed country. Even small towns had extensive streetcar systems.

Reversing America’s course from car dependency will be tough, but it can be done. After Europe demolished city centers, built suburbs, and constructed expansive parking structures during the postwar period, big cities like Paris and smaller ones like Freiberg, Germany, have moved aggressively on building out biking, walking, and public transit infrastructure.

“Having a car becomes less of an obligation for low-income people in those countries. It may be a desire, but it’s less of an obligation to pursue your daily life,” said Freemark. “As a result, they do not have to concentrate as much of their income on car costs as low-income American folks do.”

Paying More for Worse Social Services

Housing and transportation typically make up around 55 percent of a working-class household’s budget in America. For the lowest-income working families, those two expenses alone can swallow 75 percent of a household budget, leaving little for food and social goods like health care and childcare.

In many other wealthy countries, those social goods are heavily subsidized or free. In the United States, workers rely on private, for-profit services that cost more and offer less.

Thanks in part to the Bernie Sanders campaigns, Americans now recognize that we pay far more for health care than any other country, with worse outcomes. What is less widely understood for the millions of American workers with employer health insurance is the cost of the employer-side premiums, which are hidden from view. These premiums mostly come out of employee wages, according to economist Dean Baker.

“There’s a debate among economists whether it is one-to-one or whatever,” said Baker. “But I don’t know anyone who is going to tell you that if an employer is paying $10,000 for your health insurance, it doesn’t reduce your wages. That’s a very big expense — employers are not just giving it to you because they’re nice.”

Childcare costs are another huge expense for families, and once again, America is a major outlier. Amanda Novello, an economist and policy researcher, says the United States spends only $500 per child, thirty times less than the OECD average. “It’s not even close,” she said.

If families can’t afford childcare or find an accessible day care center, the burden of care usually falls on women and leads to gaps in parental employment rates. This pushes more working-class women out of the workforce. Half of all Americans live in childcare deserts. Without any government subsidies, running a childcare center is extremely precarious. Novello told me that many centers are only able to stay afloat by charging ever-higher prices or by paying their workers meager wages.

“They shouldn’t have to be profitable. Childcare is a public good, which is when the government should step in to ensure its viability,” she said.

In Finland, childcare barely affects the cost of living. “Lots of families with low income don’t have to pay anything for day care, and even high earners only pay a fraction of the market value of the service,” the Finnish researcher Mäkinen told me.

In Nordic countries, most other mass services, such as higher education and pre-K, are considered social goods as well, affording their citizens more freedom and opportunities.

In the most recent Gallup World Poll, respondents from various countries were asked, “Are you satisfied or dissatisfied with your freedom to choose what you do with your life?” Nordic countries rank near the top in answering “satisfied.” The United States ranked fifty-eighth.

Taxes Fund a Welfare State

What about taxes? Surely working-class Americans don’t pay more in taxes than, say, their Nordic counterparts, right?

Indeed, taxes are lower in the United States. Lane Kenworthy, a sociologist at the University of California San Diego who studies the Nordic countries, told Jacobin that working-class Swedes, defined as workers in the bottom half of the income distribution, give up “about 45 percent” of their gross income in overall taxes. In America, the tax rate is 20–25 percent.

A principal difference is the value-added tax (VAT), a roughly 25 percent sales tax. The vat explains why Nordic countries often rank high in cost-of-living metrics: in a recent GQ Australia article on the top ten most expensive countries to live in, Norway ranks third, just behind Bermuda and Switzerland.

But insofar as they fail to take account of publicly provided social goods like free childcare and health care (in contrast to America’s private fees), these rankings are misleading. People’s Policy Project’s Matt Bruenig says that, for low-income workers, fees are “much worse” for the wallet than paying a percentage of their income in taxes.

Bruenig also argues that the distribution of wages should be considered when looking at tax rates. In Nordic countries, widespread unionization compresses the wage scale and reduces the gap between low and high income earners. Without such institutions, working-class Americans capture a far smaller share of national income in America, which Bruenig suggests can be called a “wage inequality tax.”

Yet even when working-class Americans pay taxes, they get comparatively little in return. Take pensions. In the 2017–21 federal budget, huge subsidies went to tax-advantaged employer pensions with defined contribution plans ($624.1 billion) and employer pensions with defined benefit plans ($469.6 billion).

As Kenworthy explains, “The problem is that most of that money doesn’t go to people at the low end of the distribution. It mostly goes to the middle class, the upper-middle class, and some affluent Americans, because they’re the ones who work in companies that provide generous pensions.”

“There are some working-class Americans who receive these benefits, but that’s the exception rather than the rule,” said Kenworthy.

A similar pattern can be observed in federal housing subsidies. Novogradac, a professional housing and tax analysis firm, determined in that same 2017–21 budget that homeowners, who have incomes twice as high as renters on average, received more than $400 billion in federal tax subsidies. What did renters receive? Less than $72 billion.

After that data, the tax analysts, who are typically subdued, emphasized the disparity in uncharacteristically blunt terms: “That’s a 6-to-1 ratio.”

To make matters worse, a Brookings Institution study found that, of those billions of dollars in homeownership subsidies, “80% of the benefits will go to households in the top 20% of the income distribution. Only 4% will accrue to households in the middle income quintile.”

With all this in mind, it’s not surprising that, according to the OECD, America spends more in relation to GDP than Finland, Denmark, and Norway for the same social services, including health care, pensions, unemployment benefits, and childcare.

The bottom line, according to Finnish journalist Anu Partanen, writing in Business Insider in 2016, is that Nordic countries are both more affordable and more efficient: “They pay less, but the quality and results of their services are in many ways just as good or even better than what Americans get.”

I asked the Finnish cost-of-living expert, Mäkinen, if he had any advice for Americans and policymakers on reducing our cost of living. He laughed. “As we’ve talked about the welfare state, if you provide public goods for people for free, it of course impacts their cost of living. It’s something you should maybe consider.”