Myth of the Declining Middle Class
Since 1979 lots of Americans have moved from the middle-middle class to the upper middle class
The decline of the middle class has been a prominent theme in the 2016 election campaign. Various would-be presidential candidates, as the statistics nerd site FiveThirtyEight has pointed out, have asserted that the American middle class has been hollowing out over the past several decades. In today's Washington Post, columnist Robert Samuelson challenges this notion using data from a new study from economist Stephen Rose at the Urban Institute. "Is the middle class moving up?," asks Samuelson. The answer is, yes. Taking into account absolute income thresholds adjusted for inflation what Rose finds, and Samuelson reports, is that the size of the upper middle class grew from 12.9 percent of the population in 1979 to 29.4 percent in 2014. In other words, lots of Americans have moved from the middle-middle class to the upper middle class.
As Samuelson explains, Rose divvied Americans into five income groups; the poor at $0 to 29,999; the lower middle class, from $30,000 to $49,999; the middle class, from $50,000 to $99,999; the upper middle class, from $100,000 to $349,999; and the rich, $350,000 and up. He then examined how each group had fared between 1979 and 2014.
The percentage of American families with incomes over $356,000 grew from 0.1 percent in 1979 to 1.8 percent in 2014. Meanwhile during that period the percent of Americans in the middle-middle class, the lower middle class and the poor fell from 38.8 to 32 percent, 23.9 to 17.1 percent and 23.4 to 19.8 percent respectively.
For context let's compare the absolute amounts of inflation-adjusted national income that flowed to each income category in 1979 versus 2014. Between 1979 and 2014, U.S. GDP (in 2009 dollars) grew from $6.503 to $16.151 trillion. Roughly, the absolute amount of the GDP going to poor Americans rose from $480 to $580 billion; the lower middle class saw an increase from $1 to $1.2 trillion; and the middle middle class portion went from $3 to $4.2 trillion. The huge shift occurred for those fortunate American families whose inflation-adjusted incomes were greater than $100,000 per year. In absolute terms, the upper middle income portion of the GDP rose from $2 to $8.4 trillion; and the rich saw an increase from $260 billion to $1.8 trillion.
So most Americans in all income classes have gotten richer over the past 35 years, but the upper middle class and the rich got a lot richer. Interestingly, Rose speculates that "people in the middle class interact more with the upper middle class than they do with the very rich, and they may have stronger feelings of losing ground to the upper middle class versus their feelings about the inequality due to the huge income increases of those in the top one-tenth of 1 percent of the income ladder."
In other words, discontent over rising inequality may stem from envy among the middle class as they see the incomes of their upper middle class neighbors rising steeply.
Samuelson ends by observing, "We'll hear a lot about inequality in this presidential campaign. We need to strip away as much rhetoric as possible. Our central goal should be getting the bottom up, which is more important than pulling the top down. It's also tougher."
Alas, stirring class resentment and promising redistribution is a lot easier than encouraging economic growth.