We're ignoring a key factor in the cost of living crisis, economist says — Americans won’t get ahead until it’s fixed

The cost of living is the logical thing to blame for this bleak picture. But PhD economist Kathryn Anne Edwards argues the conversation about affordability today is too often missing a critical component: income.

“We are nearing a century low of how much money is going to workers,” Edwards says in a recent TikTok video (2).

The missing chapter of the affordability story

Simply put, Edwards says Americans just aren't making enough money, and they haven't been for a long time.

As a share of the economy, the compensation of workers has fallen since around 1970 (3). The same is not true of corporate income, which has outpaced economic growth (4).

"Our wages and income have not grown enough for us to feel like we've kept pace," Edwards says.

According to the most recent Federal Reserve data, 51.9% of the country's gross domestic income is taken home by Americans as compensation for their work (5) — on par with what we earned in the 1930s.

Crucially, total compensation also includes benefits like health care and retirement. The increasing health care costs borne by workers are helping drive this trend, Edwards says.

Edwards also argued in a recent Bloomberg column that persistently weak incomes are at the heart of America's housing insecurity problem, too, rather than a lack of supply (6).

"More supply can help, but to make a difference, it has to be available to households that are currently priced out of the market," she writes.

The math she cites is stark. If you define affordability according to the common metric of spending no more than 30% of household income on housing, that means the median U.S. household is able to comfortably pay up to $2,093 a month. The median mortgage is $2,259 (7). Collectively, we're $166 short every month.

Given that home ownership is an important way Americans save for the future and pass on wealth, this shortfall is affecting both how we live today and what we can build for the future, explaining some of the hopelessness Americans are feeling.

The uphill battle of increasing income

Edwards didn't talk about policy solutions in-depth in the video. However, she says, “We will never effectively design solutions if we do not correctly diagnose the problem.”

The economy may be trending in a worse direction for working people, but there are some actions you can take to increase your income.

Invest, even if it's just a little: It's understandable that people without much to spare keep their money in cash; it just feels safer and more accessible. But the value of cash falls as prices increase.

If you have a little money each month — even if it's just $10 or $50 — that you can afford to invest and leave alone, consider putting it into a vehicle that is likely to provide reliable returns over the long term, like an index fund. Look into whether a tax-advantaged account would be a good fit for you.

Don't leave free money on the table: A few hundred dollars more per month can be the difference between security and endless stress.

If your employer offers a 401(k) plan, consider moving around other items in your budget to contribute at least enough to get the match. That's an unbeatable 100% return rate right off the bat.