August 11 2011

Is the Middle Class' Slice of Pie Getting Smaller?

Libby Jacobson

This week, Rachel Maddow became the latest person to cite a misleading chart from the Center for American Progress as evidence of the decline of the American Middle Class. Before I explain, behold the chart in question, which suggests a strong relationship between union membership and the share of income held by the 2nd, 3rd, and 4th quintiles of American earners:

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CAP union/ middle class graph

First, mentally stretch that right axis out so that it starts at 0%, instead of 42%. The decline in middle class income share slowly drops a few of points, as union participation takes a 50% nosedive. The visual argument becomes much less convincing, doesn’t it? (For those of you who need help visualizing that transformation, here’s a crude graph I made using my wicked MS Excel skills and the same data CAP used).

My problem with these tales of woe concerning the middle class is that the “middle class” is a very amorphous group of people. The same people who were middle class forty years ago might not be middle class today (and heck, many of them aren’t even still alive today).  How many of the 25-year-olds who were in the 2nd or 3rd quintile in 1970 are now 66-year-olds retirees in the 4th or 5th quintile? Or consider the number of 22-year-old grads who will enter the Washington DC work force to earn a pittance on the hill or at a nonprofit for a few years, and who will then go on to become highly paid professionals in the next ten years. Because nearly everybody enters the workforce with few skills and little experience, the lower end of the scale is a rather transient place.

At the same time, our superstar athletes, our hedge fund wizards, our tech wunderkinds, and our CEOs (say what you will about executive pay, that’s a-whole-nother discussion) continually push the upper earnings bound up most years. Inequality is naturally going to increase in this situation,* which explains why income appears to be “taken away” from the middle quintiles. But it does not mean everybody is getting poorer. The economy is not a fixed pie. In fact, business superstars like Mark Zuckerberg or Larry Page and Sergey Brin have, in the last decade, become filthy rich by literally creating consumer value that did not exist ten years ago.

Along with being amorphous, the middle class is also an extremely diverse group. As American manufacturing has declined since the 70s, those jobs have been replaced by programmers, merchandisers, project managers, research analysts, marketing associates, customer service specialists, communications managers, strategists, IT managers, technicians, bloggers, consultants, … you get the idea. Specialization and the move to knowledge work means the number of available career paths has exploded, and many of these new middle class jobs can be performed via telecommuting, or offer flexible scheduling for employees struggling with the work-life balance. There’s little unionization because there’s no point in doing so; nobody stays in a single job or profession for more than a few years anymore, our retirement plans are largely portable from job to job, and many jobs’ skill sets overlap anyway, so it’s easy to move from one career to another. In short, the variety of jobs available to us now is so much bigger, and the terms on which we work are becoming more favorable.

It’s important to not lose sight of the fact that in both nominal and material terms, the middle class (and the working class, too) lives far more comfortably than they did in the 1970s. The houses people buy are absurdly bigger and more comfortable than the one my folks bought in 1988. Cars are safer and more fuel efficient. Appliances use less energy. Unregulated airlines charge rock-bottom prices for a cross-country flight. It’s practically every middle-class college student’s birthright to spend a semester in Europe. Even lower-middle-class and working class people carry THE INTERNET in their pockets via their mobile phones - that fact still blows my mind. I’ve yet to hear a credible argument that life is not getting materially better in absolute terms for the majority of people in America.

Now, I’ll admit that there’s an argument to be made, albeit not a very strong one in my opinion, that income inequality in itself is bad for human happiness. I understand that the hedonic treadmill means that your shiny new iPhone 4 looks less and less shiny to you after a couple of months. However, you still weren’t arguably better off twenty years ago if you got a flat tire on the side of a country road and couldn’t call someone for a tow. Forgive me if I sound like Louis C.K., but I’m not convinced we need a policy prescription for the fact that people don’t know how to make themselves happy in a world that’s getting measurably more awesome every year.  The constitution promises the freedom to pursue happiness, not a guaranteed ration of Happiness and Fulfillment Wishes.

*In fact, these researchers found that income inequality is soaring even in the top 10% of earners, as the LeBron Jameses and the hotshot CEOs’ paychecks climb higher and higher, while the lawyers and investment bankers paychecks stay relatively flat.

In the interest of full disclosure, my employer works with organizations that have an interest in some of these issues. However, these are my own personal opinions and do not reflect my employer or any organization with which I’m currently or formerly affiliated.

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