REAL ESTATE TOPICS...Most Americans Aren’t Middle Class Anymore

KATHRYN DONOHEW PHOTOGRAPHY / GETTY IMAGES

Presidential hopefuls from both parties have been saying throughout the primary campaign that the American middle class is in trouble. Bernie Sanders says it is in the midst of “a 40-year decline.” Jeb Bush says it is “shrinking.” Ted Cruz says it is “headed in the wrong direction.” And Hillary Clinton says the “basic bargain” that hard work could move families into the middle class “has eroded.”

A new report from the Pew Research Center says the candidates may be right. For the first time since at least the 1960s, the majority of Americans aren’t in the middle class.

The Pew report looks at middle-income households, which it defines as those earning between two-thirds and double the median household income. In 2014, that meant a three-person household would have to earn between $42,000 and $126,000 to be considered middle-income.¹ (Pew prefers the term “middle income” to “middle class” because class implies social standing as well as income.)

In 2015, just under 50 percent of American adults lived in middle-income households. (The chart above rounds the number to 50 percent.) That’s down from 54 percent in 2001 and 61 percent in 1971, the earliest year Pew looked at. Meanwhile, the share of income going to middle-income households has also fallen, from 62 percent in 1971 to 43 percent last year.

So the middle class really is shrinking. But it’s less clear how concerned we should be about that decline.

First of all, it’s important to note that the middle class is shrinking not just because more people are poor but also because more people are rich. The share of Americans that are in high-earning households, those with more than double the median income, has grown by seven percentage points since 1971. The share of low earners, those earning less than two-thirds the median, has grown just four percentage points. In fact, what Pew calls the “hollowing of the American middle class” is even starker than that: Most of the growth has come at the extreme bottom and top of the income spectrum. In other words, the shrinking of the middle class is less about decline than polarization.

Moreover, as I wrote last year, it’s important to remember that typical American household has changed dramatically over the past three decades. The U.S. population has grown older, on average, which makes a big difference to median income because retirees often have little income and live off savings. And it has become more diverse; in particular, the rapid rise in the number of immigrants in the late 20th century pushed down median incomes because immigrants, on average, make less money. Notably, according to Pew, black, white and Asian households have all seen a net increase in their income status since 1971, while Hispanics, who make up a large share of new immigrants, have seen a net decrease.

All these trends — an aging workforce, income polarization, immigration and racial disparities — are important issues with major economic and social implications. So is the decade-and-a-half-long stagnation of middle-class incomes. But the full picture is more nuanced than the “death of the middle class” narrative so often heard on the campaign trail.

Footnotes