More Evidence of the Middle Class Disappearing Act

What is fueling the populist movements in the 2016 election cycle? Likely, Americans who have seen the middle class status and life styles erode and disappear in some cases.

New research from the Pew Research Center looks at urban centers, which are home to three-quarters of the nation’s population, and finds startling changes to the financial situations of American households over the past almost fifteen years. Looking at 229 of the 381 metropolitan areas, Pew surveyed the growth of upper and lower income tiers to confirm the decline of the middle class.

From 2000 to 2014, the share of adults living in middle-income households fell in 203 of 229 cities. Nationally, the drop in the share of middle-class households was 4 points, but in some urban areas it was as much as 6 points.  There was some good news too. The share of adults in upper-income households rose in 172 of the 229 metro areas during this time period. Some 108 metropolitan areas experienced both growth in upper-and lower-income tiers. What this tells us is that many Americans households are worse off, but some have moved on up.

The middle-income range in 2014 was about $42,000 to $125,000 annually for a household of three. The metropolitan areas with the greatest shares of middle-income adults are mostly in the Midwest in states such as Wisconsin, Illinois, and Indiana. Upper-income areas tend to be concentrated in the Northeast or California coast such as Connecticut, the DC/Maryland/Virginia area, and some cities of California. The Southwest and areas bordering Mexico have higher shares of lower-income households such as other California towns as well as Texas and Arizona.

While many factors could be at play, the report explains that cities with the greatest losses had a reliance on manufacturing:

Although other factors may also be at work, the 10 metropolitan areas with the greatest losses in economic status from 2000 to 2014 have one thing in common—a greater than average reliance on manufacturing. ¹⁵ Most of these areas, such as Springfield, OH, and Detroit-Warren-Dearborn, MI, are in the so-called Rust Belt. The areas not in the Rust Belt, such as Rocky Mount, NC, and Hickory-Lenoir-Morganton, NC, are also industrial communities.

These areas generally experienced a significant drop in manufacturing employment from 2000 to 2014, ranging from 23% in Fort Wayne, IN, to 51% in Hickory-Lenoir-Morganton, NC, compared with 29% nationally. The jobs lost in manufacturing were not entirely picked up elsewhere as overall private sector employment also fell from 2000 to 2014 in these 10 metropolitan areas, ranging from a decrease of 3% in Goldsboro, NC, to a decrease of 25% in Hickory-Lenoir-Morganton, NC. In contrast, private sector employment in the U.S. overall increased 5% from 2000 to 2014. ¹⁶

And we can’t neglect the toll that the recession took on American households. Sadly, too many American families have yet to recover, despite what President Obama and progressives tout as success for their policies.

American households in all income tiers experienced a decline in their incomes from 1999 to 2014. Nationally, the median income of middle-income households decreased from $77,898 in 1999 to $72,919 in 2014, a loss of 6%. The median incomes of lower-income and upper-income households fell by 10% and 7%, respectively, over this period.

The decline in household incomes at the national level reflected nearly universal losses across U.S. metropolitan areas. Middle-income households lost ground financially in 222 of 229 metropolitan areas from 1999 to 2014. Meanwhile, the median income of lower-income households slipped in 221 metropolitan areas and the median for upper-income households fell in 215 areas.

If there’s one conclusion to draw from this research it’s that education and skill levels of workers play a tremendous role in lifting families economically higher, or at least in helping prevent them from falling further behind. When we look at the US income curve as the Financial Times did, we see that cities with higher percentages of college graduates tend to cluster on the higher part of the curve while areas with fewer educated fall lower on the curve.

A college education is not guarantee of middle class success though. There are plenty of unemployed college grads, and skilled jobs that don't require college are going unfilled.  When manufacturing disappeared, the workers did not. The challenge for our nation is to close the gap in skills between our workers and the opportunities that are available which may be more specialized than before.

Taxing the successful is not the answer. We must ensure that lower income Americans can get access to more opportunities. In some cases, our public policies (taxes, regulations) have simply eroded opportunity all together. In those cases, opportunity is gone and won’t be coming back.