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June 27 2016

Behind the Middle-Class-Is-Shrinking Story

Patrice L. Onwuka

The middle class in America is shrinking, but there is some welcome news in the form of Americans moving up the income ladder.

Before engaging in stale income inequality arguments, there’s something to celebrate. More American families have moved on up like the Jeffersons. There is movement of new households to the upper-middle class. The recession may have hit middle class and poor families hard, but still not hard enough to erase decades of gains.

According to new research from the Urban Institute, from 1979 to 2014, the upper middle class more than doubled in size from 12 percent to 29 percent. That’s a move of 1 in 8 U.S. households to 1 in 4! Upper middle class is defined by these researchers as any household earning $100,000 to $350,000 for a family of three.

The ranks of the wealthy also expanded – although much less in comparison. Names like Mark Zuckerberg, Oprah, Bill Gates, Warren Buffets, Jay-Z and Beyonce, as well as celebrities, athletes, those on Wall Street, and professionals such as doctors boosted the class of the rich over the past almost four decades. Yet, the wealthiest (those with incomes over $350,000) remained relatively stagnant increasing under one percent from 0.1 to 1.79 percent.

This should not obscure the fact that the same time has not been so good for the middle class ($50,000 – 99,999), lower middle class ($30,000 – 49,999), and the poor, who have experienced the biggest declines. The middle class decreased from 38.8 percent to 32 percent, the lower middle from 23.9 percent to 17.1 percent, and the poor and near-poor fell from 24.3 percent to 19.8 percent.

So there are two key takeaways here: First, the American middle class is not monolithic, but is comprised of families with varying levels of purchasing power, lifestyles, and experiences. Second, the household income pie has been re-sliced so to speak almost into thirds: rich/upper middle, middle/lower middle, and poor.

The Wall Street Journal reports on this phenomenon:

“Any discussion of inequality that is limited to the 1% misses a lot of the picture because it ignores the large inequality between the growing upper middle class and the middle and lower middle classes,” said Mr. Rose. The Urban Institute is a nonpartisan policy research group.

Mr. Rose’s paper is part of a broader body of research seeking to measure the upper middle class—a reappraisal that doesn’t always fit comfortably in the left or the right’s political narratives. While it underscores the growth of economic inequality, it undermines the idea of lower- and upper-middle-class voters being in the same boat. It suggests that the majority of Americans have indeed struggled, but that a large minority has thrived.

Research published in March from Sean Reardon of Stanford University and Kendra Bischoff of Cornell University, for example, found the number of families living in affluent neighborhoods has more than doubled, to 16% of the population in 2012 from 7% in 1980. They define these neighborhoods as those where median income is at least 50% higher than the rest of the city.

Economist Robert Samuelson comments:

It turns out that the middle class isn’t stagnant after all.

You know the conventional wisdom. The richest 1 percent of Americans have siphoned off all the income gains of recent decades. Everyone else is treading water… The reality is different: Living standards for most income groups have improved, especially for the upper middle class, which has more than doubled in size.

We do know that growth of inequality has been powerful. [John] Komlos [of the University of Munich] figures that the income of the top 1 percent is 51 times the income of the poorest fifth of Americans, up from 21 times in 1979. Wow! But we also know that the economy still generates higher living standards for most households, though the process is slow and often unappreciated.

People are getting ahead but don’t feel they’re getting ahead. The explanation is simple enough. The significant gains Rose cited occurred over a 35-year period. Though they are sizable now, the increases in any one year may have been so small that people don’t register a “positive change in standard of living,” as Komlos puts it.

We still need to ensure that those at the bottom and lower middle-classes continue to rise. The way to do this isn't programs that in essence redistribute wealth but in creating a good economy that gives people a shot at prosperity.  

Boosting purchasing power by lower taxes is a way to get us there. We can also expand opportunity by changing the rules that make it difficult –if-not impossible- to start businesses or get into occupations that can provide stable income (so-called occupational licenses).

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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