Drastic reduction in poverty and the rise of a large middle-class have been largely pitched as one of the major breakthroughs of the past two centuries. However, the importance of a 
growing and expanding economy has been often overlooked. After the World War II, middle-income households (MIHs) in the US enjoyed rising standards of living, as their income were more than the cost of living. However, in recent years, there has been a reverse trend. The cost of living of MIHs has seen a major hike as compared to the incomes, especially in a few metropolitan areas. This has decreased their savings. Most of the income is consumed for basic necessities and consequently, the standard of living declined making MIHs less affluent. However, the same median household income can afford much more basic necessities in some metropolitan areas than others. As a result, nominal incomes (incomes that are not adjusted for cost of living in the metropolitan area) are not reliable indicators of the standards of living that they can support.
Standard of Living Index
The Urban Reform Institute (formerly the Center for Opportunity Urbanism) has developed its annual URI Standard of Living Index (SLI) to facilitate comparisons between metropolitan areas. A SLI is different from a cost of living index (CoLI). While the CoLI reports prices without reference to incomes, the SLI reports the purchasing power of an income level (such as the median income of a metropolitan area), compared to the purchasing power of the national median household income (MHI) at national prices. Thus, it provides an estimate of purchasing power of a household compared to elsewhere.
The SLI combines CoLI with MHI. In order to evaluate standards of living in comparison to national and those in other metropolitan areas, 107 metropolitan areas with more than 500,000 residents belonging to MIHs were selected as part of the exercise by URI.
The SLI estimates the value of the goods and services, and savings that can be afforded with the median income, or how much their income can buy compared to elsewhere.
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The index is calculated in relation to the purchasing power of the national MHI as such that it estimates the comparative affluence of metropolitan areas.It assumes a value of 100 for the purchasing power of the US MIH. Further, the SLI is calculated using the latest available “Regional Price Parities” (RPPs), which are produced by the Bureau of Economic Analysis (BEA). RPPs estimate the purchasing power, or cost of living, in states and metropolitan areas. The SLI also uses MHI data from the Bureau of the Census of the US Department of Commerce,which is normalised for purchasing power, using a metropolitan area CoLI.
The segregation of metropolitan areas by nominal incomes and the index creates a metric that estimates how far income can go in various metropolitan areas. Ironically, Higher Standards of Living (HSL) were found in larger metropolitan areas, with the exception of the largest. The “megacities”, which had more than 10 million residents, were the least affluent (New York and Los Angeles metropolitan areas). On the other hand, the residents of Washington, as measured by the SLI, had the most purchasing power in the South and South Atlantic Division, in addition to its national leadership. While Ogden, UT was most wealthy in West and the Mountain Division, Minneapolis-St. Paul ranked first in terms of HSLin the Midwest and West North Central Division.In the Northeast and the New England Division, Hartford was the most affluent.Higher nominal incomes were associated with the strongest high technology centres, and the two of the eight Census Division leaders among these were Austin and Seattle.
There has been a belief that that moving to a more affluent metropolitan area with higher nominal incomes would positively impact the income generation.However, in reality, these households have shifted from these areas to those that cluster towards the top of the SLI rankings. There is net domestic migration to the metropolitan areas with higher SLI from those with lowers standards of living. There is also greater income equality in the metropolitan areas with higher SLI.
These findings come at a time when there is a growing concern that middle-income standards of living are declining, both in the US and in other high-income nations. The Organisation for International Cooperation and Development (OECD) maintains that a subsequent rise in the housing costs has been the principal cause for the declining standards of living among MIHs.
Middle Class and Standard of Living
The presence of greater percentage of middle class is generally presumed to be an indicator of prosperity and development. The presence of a strong and prosperous middle class supports healthy economies and societies, and the middle class used to be a role model. By and large, their consumption, investment in education, health, and housing, their support for good quality public services, their intolerance of corruption, and their trust in others and in democratic institutions are said to form the very foundations of inclusive growth. However, there are now signs that this bedrock of our democracies and economic growth is not as stable as in the past.
OECD emphasises that the threat to the middle-class is due to high costs of living that have increased at rates far greater than incomes.
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Higher costs of living are a threat to the middle-income lifestyle, because itpreys on their savings and in doing so, reduce the standard of living. By the way, French economist Thomas Piketty and others too have identified a similar concern. According to Matthew Rognlie of Northwestern University, the increased inequality largely reflects an acceleration of inequality in housing wealth. Moreover, according to Gianni La Cava of the Bank for International Settlements the increase in wealth inequality in the US was also concentrated in housing wealth.Both of these researches note the role of strengthened land-use regulation in the inequality occurring from concentration of wealth in housing.
Impact of COVID-19
The economic crisis thrown out by the global pandemic COVID-19 has helped us realise the crucial role of a strong economy in maintaining a standard of living. The economic lockdown has proved to be a financial threat for many households, not only in low income and developing economies, but also in the developed countries of the West. The sad reality is that, for most it is likely to last well beyond the reopening of economies post COVID-19 lockdowns. It is generally accepted and known that when an economy crumbles, the greatest personal sacrifices tend to be experienced by lower-income and MIHs. It is quite evident by now that the challenge of maintaining, rather than improving standards of living will be more difficult in the future. The reductions in incomes could be far greater, despite lowering of housing costs whatever. This is an issue which should be the top priority of the public agenda in the post-pandemic economic scenario, globally.
