Middle-class squeeze: From day care to health care

By Christopher S. Rugaber AP Economics Writer WASHINGTON (AP) - Three years ago, Jason Prosser was stunned to discover the cost of child care for his newborn son - so much so that he and his wife postponed having a second child. The day care center they found near their Seattle home tops $10,000 a year. Next year, their son, now 3, can attend a Catholic preschool less than half as costly. "It'll be nice to have enough relief next year," Prosser said. "It's just funny that the relief will be a private school." He and his wife are among legions of middle-class families who are straining under the weight of accelerating costs for a range of essential services from day care to health care. And now a study by the Center for American Progress shows just how heavy the burden has grown: For a typical married couple with two children, the combined cost of child care, housing, health care and savings for college and retirement jumped 32 percent from 2000 to 2012 - and that's after adjusting for inflation. Compounding the pain is that average pay for Americans is barely topping inflation. The figures help explain why many Americans feel stressed even as the economy has strengthened - and why some feel bewildered to hear that overall inflation in the United States is, if anything, too low. From TVs, computers and cellphones to clothing and cars, many goods have dropped in price in the past decade. Those declining prices have helped keep overall inflation historically low - even lower than the 2 percent the Federal Reserve thinks is ideal. Yet when you consider that average health care and college costs rocketed more than 80 percent from 2000 to 2012, it's easier to understand why many families feel they are struggling. "An overseas colleague characterized the situation well: America is a place where the luxuries are cheap and the necessities are expensive," said Joseph Cohen, a sociology professor at Queens College in New York. The squeeze is making it harder for middle-income families to build savings. The median net worth of families in the middle 20 percent of incomes fell 17 percent from 2010 to 2013, according to the Federal Reserve's Survey of Consumer Finances. "People feel greater anxiety because their pay is stagnating, their costs have gone up, and they feel like they are running in place or even falling behind," said Neera Tanden, the CAP's president. Cohen said it's hard to foresee an end to the squeeze. "There is every reason to believe that a country with an aging population and an economy that is increasingly reliant on high-skilled workers will continue to face pressures to spend on health care and education," he wrote in a study earlier this year. More Americans are paying higher health care costs in the form of premiums and deductibles. Stephen Tarkowski has noticed the change. When Tarkowski, 38, of Chilton, Wisconsin, first started working, "if you had health insurance, you didn't have to worry about co-pays, you didn't have to worry about anything." But now, "I can't afford to increase my own savings, when my health care costs are increasing at the same time," he said. Tuition and fees at four-year public colleges soared 86 percent, adjusted for inflation, from 2000 to 2012 - far above the 52 percent increase of the preceding 12 years, according to data from the College Board. State aid to higher education has fallen in the past decade, thereby requiring students to bear more of the cost. Child care costs for a family of four have soared an average of 37 percent in the past 12 years, according to the data compiled by the CAP, and now exceed the typical cost of renting in every state. Those costs may be pricing some women out of the workforce, according to a Pew Research Center report. Pew found that the percentage of mothers who stay at home reached 29 percent in 2012, the highest level in two decades. So why are the costs of such critical services rising, even as many other goods and services become cheaper each year? Economists offer several explanations. Justin Wolfers, a fellow at the Brookings Institution, notes that manufactured goods have become less expensive as factories have become more efficient and automated. Manufacturers have also used cheaper overseas labor to control costs. By contrast, in-person services like education, health care and child care still require labor that can't be outsourced. Douglas Holtz-Eakin, a former director of the Congressional Budget Office, also notes that colleges and hospitals - unlike, say, auto makers - rarely compete on price. Both receive extensive government subsidies, which reduce their incentives to cut costs. A survey by Pew this year found that 57 percent of Americans felt their income was trailing the cost of living - the same proportion who felt so in October 2008 when the Great Recession was raging. Just before the recession began, the figure was 44 percent. The sensation of being squeezed persists even though the consumer price index, the most widely followed inflation gauge, has risen less than 2 percent a year since the recession ended. One reason for the disconnect is that the CPI is weighted more heavily toward things people frequently buy - food and gasoline, for example. While child care can be a huge expense for families with young kids, not everyone faces it. So it makes up just 0.7 percent of the consumer price index. It's a much bigger bite in the Prosser household, however. "We used to go out, we used to go to the opera," Prosser said. But now, "between mortgage, bills and the child care payment, that's pretty much everything." -------- The CAP report can be found at: http://ampr.gs/1CbMgo0. Published: Tue, Sep 30, 2014