It was the quintessential middle-class American dream — not to be a billionaire looking out from your New York City Penthouse upon the urban skyline, but simply to have a home in the suburbs with your spouse, two kids, a dog, and a comfortable income. Income inequality has put a squeeze on the American Dream — at least with respect to home ownership and comfortable income — and now the middle class has shrunk to the point of no longer being a majority in America.
A new report by the Pew Research Center shows that the middle class is being slowly absorbed into either end of the income spectrum. In 1971, 61% of the population could be defined as middle class. By 2014, that number dropped to just below 50%. 120.8 million American adults fall in the middle class definition while 121.3 million fall into other categories.
In one aspect, this could be called positive news because more of the middle class families have been moving into the higher-income category as compared to the lower-income group. For purposes of the study, Pew defined middle and upper class by a threshold value based on fractions of the median income adjusted for the size of the household. Middle class status begins at two-thirds of the median household income; at twice the median income or greater, you are considered upper class.
Within each category, median incomes rose significantly since 2014, but the rates were not evenly distributed. Upper-class households saw a 47% increase in their median value ($174,625), the middle-class household median increased 34% ($73,392), and lower-incomes increased 28% ($24,074). The spread still favors the wealthy.
The job market has changed significantly since 1971, driving the decline of the middle class. Many of the blue-collar manufacturing jobs that defined the middle class have either been exported overseas or automated out of existence. The remaining manufacturing jobs are tilted toward either those with higher education and skill levels (and upper class salaries) or lesser-skilled jobs that can be done with limited training and proportionately lower salaries.
Psychology, and perhaps headlines, makes the situation seem even worse. Gallup surveys show that fewer people consider themselves middle class than in the past — 51% today compared to 63% in 2008 — and 48% consider themselves lower class. Thus, only 1% considers themselves to be part of the upper class. Both perception and reality show the middle class shrinking, but perception has the lower class growing faster when it is actually the upper class.
Still, many Americans did suffer a tangible drop in status. Consider that unemployment rose to 10% due to the Great Recession, and a significant number of people are not counted in that value because they dropped out of the workforce entirely. Others were forced into underemployment.
Politicians have understandably homed in on this, stressing tax cuts, and job programs designed to "restore the middle class." An increasing number of people feel that they are falling behind and dropping out of the middle class, and they are angry and looking for answers. This explains the popularity of Bernie Sanders' redistribution concepts, and to a certain extent, it also explains the fear and anger driving supporters of some of the Republican presidential candidates.As the campaigns wage on, the concept that more Americans are falling from the middle class into the lower class will be reinforced. Since the middle class historically drives spending, such a trend is counterproductive for the economy. People who misidentify as a lower class than they are will probably not spend much money, and the economy will suffer as a result — making higher-paying jobs even more difficult to find and keep.
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