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December 15 2015

More on the Hollowing of the Middle Class

Patrice J. Lee

Belonging to the American middle class is dream of immigrants and the goal of regular Americans.

However, the nation’s largest economic group is shrinking, according to new data, because of stagnating wages and rising costs. But the number of rich people in the U.S. is growing.

A stable job, a home of your own, a car, a few kids, and maybe a vacation once each year are hallmarks of the American Middle Class. Fewer households are finding themselves in the middle.

According to Pew Research, in early 2015, 120.8 million adults were in middle-income households compared with the 121.3 million people in lower- and upper-income households combined. The share of adults living in middle-income households has fallen from 61 percent in 1971 to 50 percent today. Pew defines middle-income as those whose annual household income is about $42,000 to $126,000 annually for a household of three.

Looking back over the past four decades we see that the American economy has made life better for many Americans allowing them to move up from the middle class, but some have fallen out of the middle class as well.

The share of upper-income households grew from 14 percent in 1971 to 21 percent, while the percentage of lower-income households grew from 25 percent to 29 percent in that period. That 7 percentage point increase for those at the top is nearly double the 4 percentage point increase for those at the bottom.

Upper class households of course have more money in the bank. During this period the nation’s aggregate household income shifted from the middle-income to upper-income households. Nearly half (49 percent) of U.S. aggregate income belonged to upper-income households in 2014, compared to just 29 percent in cone 1970.

Here’s more from the report:

The Great Recession of 2007-09, which caused the latest downturn in incomes, had an even greater impact on the wealth (assets minus debts) of families. The losses were so large that only upper-income families realized notable gains in wealth over the span of 30 years from 1983 to 2013 (the period for which data on wealth are available).11

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The disparate trends in the wealth of middle-income and upper-income families are due to the fact that housing assumes a greater role in the portfolios of middle-income families. The crash in the housing market that preceded the Great Recession was more severe and of longer duration than the turmoil in the stock market. Thus, the portfolios of upper-income families performed better than the portfolios of middle-income families from 2007 to 2013. When all is said and done, upper-income families, which had three times as much wealth as middle-income families in 1983, had seven times as much in 2013.

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As the middle has hollowed, some demographic groups have been more likely to advance up the income tiers (winners) while others were more likely to retreat down the economic ladder (losers).

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The biggest winners since 1971 are people 65 and older. This age group was the only one that had a smaller share in the lower-income tier in 2015 than in 1971...The youngest adults, ages 18 to 29, are among the notable losers with a significant rise in their share in the lower-income tiers.

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Winners also include married adults, especially couples where both work. On the flip side, being unmarried is associated with an economic loss. This coincides with a period in which marriage overall is on the decline but is increasingly linked to higher educational attainment.

Gains for women edged out gains for men, a reflection of their streaming into the labor force in greater numbers in the past four decades, their educational attainment rising faster than among men, and the narrowing of the gender wage gap.15

Among racial and ethnic groups, blacks and whites came out winners, but Hispanics slipped down the ladder...

While we are always glad to see people make more money and move up, the hollowing out of the middle class in a country is never a good thing. Noting that young adults are in a particularly tight situation, with increasing numbers in the lower-income tiers, we can expect the diminishment of the middle class to continue, if policies that stymie job-creation, essential to upward mobility, are not reversed.

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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