A century ago, Henry Ford startled the world by doubling his workers' wages, with some reaching the unheard-of level of $5 a day. Although accounts of Ford's motivation differ, his decision fit into a larger context: A mass-production economy requires a mass-consumption society. In the absence of broad-based, steadily rising purchasing power, the engine of economic growth will sputter and die.

Fast-forward four decades to the day in the early 1950s that a Ford executive was showing United Auto Workers President Walter Reuther around a state-of-the-art automated assembly plant. The executive pointed to some gleaming new machines and asked Reuther, "How are you going to collect union dues from these guys?" Reuther replied, "How are you going to get them to buy Fords?" News accounts record no answer to either question; nor do the ensuing 60 years.

This brings us to the present day—to a slow-motion recovery that thus far has left millions of Americans unemployed or underemployed and millions more outside the workforce. One key reason for this sluggish performance is a housing industry that is falling far short of a normal rebound from recessionary lows. Economists estimate that long-term demand for new housing units should average about 1.5 million a year. After overshooting badly between 2000 and 2006, the market collapsed to barely half a million by 2009. New housing starts have increased since then to an annual rate of just under one million, far below long-term trends. According to Neil Irwin of the New York Times , investment in new residential property today represents a smaller share of the U.S. economy than at any other time since World War II. If it returned merely to its postwar average share, growth would jump by 2%, adding 1.5 million jobs and knocking a full point off the unemployment rate.

So why aren't there more housing starts? Answer: Because new households are forming at less than 40% of the normal rate. Young adults are living with their parents at much higher rates than before the Great Recession. Many cannot afford monthly rental costs, let alone come up with the down payments they need to qualify for mortgages.

This reflects the continuing travails of young adults in a slack labor market. Among recent college graduates ages 20 to 29, the Bureau of Labor Statistics reports, unemployment stands at 10.9%, more than three points higher than in 2007. A study from the Federal Reserve Bank of New York finds that of the recent college graduates who have managed to find work, more than 40% are in jobs that do not require a college degree; more than 20% are working only part-time; and more than 20% are in low-wage jobs.