Even Americans who think they know where their money goes probably have no idea how their spending compares with that of their parents or grandparents. But such figures yield a surprising picture of how our economy works—and how it’s changing. We take for granted, for instance, our much-discussed drift away from manufacturing. Advances in technology and education have created massive productivity gains, which have made things cheaper and easier to obtain. Consider necessities like food and clothing, which gobbled up 42% of our spending in 1947. Six decades later—even in the face of exorbitant spending on frivolities like high-end coffee and designer clothes—food and clothing accounted for only 16% of spending. (In our research, we use 2007 as our end point because some economic relationships have been distorted by our current downturn.) But is spending less on the production of tangible goods such a bad thing? Not necessarily. After all, the shift frees up resources for areas like health care, education, and recreation, where spending has increased.
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If we drill down further—to see not just the categories we spend on but where our dollars go within those categories—the picture is even more dramatic. Taking 1967 as our starting point, 30% of the cost of the things we consumed that year went to manufacturing them; by 2007, that figure had fallen to 16%. In contrast, what we spent on business services over the same period jumped from 12% to 26%. That’s because baked into the price of everything we buy is the rising cost of advertising, accounting, legal services, insurance, real estate, consulting, and the like—jobs performed by the high-wage workers of our modern economy. These days, 52% of all compensation goes to office workers. That includes the manufacturing sector: nearly a third of workers aren’t on the factory floor; they’re behind desks.
Graphics by Kiss Me, I'm Polish; Sources: Bureau of Economic Analysis; U.S. Census Bureau