Pew Research released a blockbuster study in early December and the title gets right to the point: “The American Middle Class is Losing Ground.” The big takeaway was that America’s middle class is no longer a majority: the nation’s upper-income and lower-income households, together, now outnumber the middle-income households. In 2015, there were 120.8 million adults in middle-income households, compared with 121.3 million in either lower-income or upper-income households. Compare that with 1971, when there 80 million adults in middle-income households, versus 51.6 million in either lower-income or upper-income households.
At Daily Kos and throughout the liberal blogosphere, it’s usually taken as an article of faith that the middle class has lost much of its traditional strength in the previous decades … but now someone has actually done the math, and confirmed that it’s not just our imaginations. Part of the problem in making the case that it’s actually happening is that “middle class” is such a nebulous construction.
But Pew has found a unique way of keeping up with the moving target (as the amount of money that it takes to be “middle class” keeps getting bigger each year, thanks to inflation). For each year, they define those households whose income falls between 67 percent and 200 percent of the nation’s median household income (which is currently around $53,000 for all households, though it was under $10,000 back in 1971).
They add an extra element, though: for each household, they vary it by household size … which is crucial, since a $53,000/year household with one person in it can live reasonably well in most parts of the country, while a $53,000 household with four persons in it is probably living paycheck to paycheck. So, for a household of one in 2015, to be “middle class” would involve an income of $24k to $73k; for a household of four, it would need an income of $48k to $145k.
As you can see in the chart excerpted above, that middle band of households making 67 to 200 percent of median income has shrunk every decade. Interestingly, though, there’s no one decade that particularly stands out to blame (and which decade would you blame, anyway? The crushing inflation of the ‘70s, Reaganomics in the ‘80s, or the recession of the ‘00s? They all contributed in their own ways). Instead, the decline was very steady, nibbling away two or three percent each decade.
There's actually some good news in the decline of the middle class: there were more people who moved from the middle tier to the upper tier than from the middle tier to the lower tier! If you look closely at the chart above, you'll see that 25 percent of households in 1971 were lower tier, and that rose to 29 percent in 2015 (a gain of four) ... but 14 percent of households in 1971 were upper tier, and that rose to 21 percent in 2015 (a gain of seven).
If you think a little more deeply about it, though, even that good news starts looking less good. For starters, we’re seeing the ongoing Two-Americas-ification of the country, and that’s bad for the overall economy. The economy’s health is dependent in large part on as broad a segment of the population as possible being able to consume freely. That depends on a large middle class—members of the upper class don’t spend as big a percentage of their income on consuming goods; instead, they spend more on services or simply on investing and saving, which doesn’t create as much of a multiplier effect.
Think of it this way: a middle class household probably owns a car or two, or, say, a refrigerator or two. A billionaire, by contrast, doesn’t buy cars at a similar rate; he doesn’t own millions of cars or refrigerators. So when there are fewer members of the middle class in the first place—i.e. people who can afford to buy a car or refrigerator at all—that means less demand for durable goods, fewer production jobs, fewer jobs that pay well enough to enable buying durable goods … and the spiral keeps going down and down.
This becomes clearer when you look at the chart to the right, about aggregate income. In 1970, the middle class (which back then took up 61 percent of the population) was earning 62 percent of all the nation’s total income. The upper tier (which was only 14 percent of the population) earned 29 percent of the nation’s total income). But by 2014, the middle class made up 50 percent of the population, but was only earning 43 percent of the nation’s total income. The upper tier had increased to 21 percent of the nation’s population, but is now vacuuming up 49 percent of the nation’s total earnings. That’s where the real loss of middle class strength comes: not so much in the decline as a share of the population, but in the decline as a share of the nation’s total pool of earnings.
The other problem darkening the picture of the expanding upper tier is that even if you’ve squeaked over the line into the upper tier (look at the "upper middle" group on the chart above), you’re not living in some sort of nouveau Gilded Age. Instead, you’re living pretty much the same way the middle class used to live, just with a sixth digit added to your annual income.
If you’re that family of four who narrowly cleared the bar—earning, say, $150,000 per year—chances are good that’s because there are two earners in your household. And chances are good that you’re living in a major metropolitan area, in order to be earning those decent salaries. That means you’re probably paying for a large mortgage on a piece of real property whose acquisition costs have rapidly outpaced the inflation rate on more mundane stuff like food and clothes. You might be paying for child care in order to make those dual careers possible, or else saving for college … again, both expenses that are very large and going up disproportionately, compared with the rate it which your income is increasing.
That isn’t to say that you’d be better off ditching the marriage and the college fund, though. Pew adds some nuance to the discussion by looking at how different demographic categories have done since the 1970s, in terms of whether they’ve moved up to the upper tier or fallen down to the lower tier. As you can see in the chart to the right, there are correlations with marriage, more education, and moving upward. For instance, the share of married households with children who’ve moved from the middle to upper tiers exceeds the share of married households with children who’ve fallen to the lower tier by 10.1 percent. By contrast, when you look at the unmarried, the share who’ve fallen to the lower tier exceeds the share of those who’ve moved to the upper tier by 1.3 percent. (A lot of that has to do with the way that marriage is—sorry to get unromantic here—simply an efficient arrangement, that lets two people better pool their labor power and their money.)
Similarly, education gives you a better shot at moving to the upper tier. Those with a bachelor’s degree or more moving to the upper tier exceeded those with a bachelor’s degree or more falling to the lower tier by 1.3 percent. However, people who were only high school graduates who fell to the lower tier exceeded high school graduates who rose to the upper tier by a whopping 21.9 percent. That’s one of the main drivers of today’s increasing inequality: that the jobs that pay tolerably well, for the most part, require college education … and that the cost of said college education is going up faster than the cost of just about anything else.
One interesting thing that you’ll note looking at the demographic breakdown is that African Americans have fared better than you might expect at moving from the middle to upper tier. In fact they’ve moved up at a faster rate than whites, though that may have to do more with what a lousy position they generally were still in in 1971 (less than ten years after passage of the civil rights legislation and Great Society programs of the 1960s), than anything else.
Another important thing to note: age may be the most significant determinant of all now. The increase in the share of persons 65 or older who are in the upper tier now, compared with 1971, is huge (26.7 percent, the biggest gain of any category), while persons age 18-29 are notably likelier to be lower tier than upper tier than they were back in 1971. That’s partly because, in a less manufacturing-centric economy, it’s harder to find an entry-level job that pays well from the outset, and also because in a more education-centric economy, many people are spending much of their 20s just going through the credentialing process.
Finally, one thing that seemed missing from Pew’s original report was a discussion of which occupations saw the most gains and most declines. After all, the economy is perhaps spikier than ever, with certain sectors thriving and others dwindling. Luckily, they added a sidebar later that focused on just that, showing what happened to each sector of the economy over the period from 1971 to 2014.
The sector of the economy that saw the most people exit the middle class was, perhaps surprisingly, the communications industry: 19.5 percent fewer people in that sector were in the middle class in 2014, compared with 1971. However, slightly more of them ended up moving to the upper tier than falling to the lower tier: 12.3 percent went up, compared with 7.2 going down.
Perhaps not surprising was that manufacturing that closely followed, in terms of percentage who exited the middle class (losing 14.9 percent, in the “nondurable manufacturing" category). What you might not expect, though, is that the bulk of the movement was to the upper tier (10.8 percent, compared with 4.1 falling to the lower tier). Of course, that doesn’t reflect the people who used to work in manufacturing and now don’t (they probably aren’t the ones who made the jump to the upper tier!). Instead, the much smaller manufacturing workforce now is also largely a more highly skilled workforce, requiring more specialized knowledge, which also leads to better compensation for those few who remain in the field.
What definitely won’t surprise you—given the increasing financialization of the economy over the last 40 years—is the shift in the FIRE (finance, insurance, and real estate) sector. The middle class portion of this sector shrank, but so too did the lower tier portion! Instead, all the growth in this field was in the upper tier; that’s the only sector of the economy where that happened.
Finally, if you look closely at the chart to the upper right, you’ll notice that in the majority of all sectors, there was more movement from the middle tier to the upper tier, than from the middle tier to the lower tier. There are three sectors (in the middle of the chart), however, where the majority of the movement was from the middle tier to the lower tier, rather than from the middle tier to the upper tier. And unfortunately, those three are some of the fields with the largest number of people working there: transportation, construction, and retail trade. For instance, in the retail field, the middle class portion shrank by 11.2 percent. There was only a 2.5 percent gain in the upper tier, though, and an 8.7 percent gain in the lower tier. That only underscores the importance of new legislation that boosts minimum wages and hopefully moves more members of the retail sector back toward a living wage.