The ‘Hollowing’ of the Middle Class

The narrative is set, and as a rhetorician, I appreciate the value of a good story in shaping public debate.

The rich are getting richer, the poor are getting poorer, and many of the middle class are being pushed down into the lower-class. It's a sad story, a compelling story, and in some important ways it is a fiction.

Yes, the middle class is shrinking. That should concern us. But what if the shrinking middle class is as much a result of people moving into the upper class as it is a result of others moving down the social ladder? In fact, some research shows there are more people moving from the middle into the upper income brackets, leaving a smaller middle class — but not for the reasons being promoted by the media and politicians.

Exceptions in the media coverage exist, as they do in little tiny dimly lit sections of academia. Readers know I enjoy Robert Samuelson because he digs deeper into statistics than other newspaper columnists.
The 'hollowing' of the middle class?
Despite the top 1 percent's outsize incomes, most still see an upward march of living standards.
By Robert J. Samuelson
January 3 at 8:04 PM ET

We'll be hearing a lot about the middle class in the coming months. That's one sure bet for 2016, as both parties compete for votes. What's less sure is whether we'll get an accurate assessment of the middle class's condition. By now, the conventional wisdom is familiar: The top 1 percent has skimmed most income gains for itself, producing decades of stagnant living standards for most Americans. Wall Street has slaughtered Main Street.
Data from the Pew Research Center raises questions about the popular narrative. It challenges assumptions about why the middle class is shrinking and where its former members have gone.
Now comes a report from the Pew Research Center that paints a more complex picture. It's not that the Pew study contradicts all the conventional wisdom. It finds (as have others) that economic inequality is increasing.

In 1971, about 61 percent of adults lived in middle-income households (defined as three-person households with incomes from $41,869 to $125,608 in today's dollars). By 2014, that share had dropped to 50 percent. Meanwhile, the share of low-income households (households with incomes of $41,868 or less) grew from 25 percent to 29 percent, and the share of upper-income households (incomes above $125,608) increased from 14 percent to 21 percent.
Read the above carefully. There was a 4 percent increase in the low-income concentration, but a 7 percent increase in the upper-income households. In other words, nearly twice as many people left the middle class by moving upwards as left the middle on their way to the lower-income set.

This isn't great news, but it shows that what is really happening is that the middle is being redistributed in two directions. My wife and I went from the middle to the upper over the last ten years. Like many of our peers, we are two college-educated professionals with graduate degrees and technical skills. Households like ours (married, two-incomes, highly-educated) moved up the income distribution graph.

Meanwhile, our friends without college degrees, especially our single friends without specialized skills, slid backwards quickly during the last decade. The period from 2005 to 2015 was a lousy time to be on the wrong side of the skills divide. It's particularly difficult for single parents to obtain the credentials to advance economically, for a variety of reasons. There are always exceptions, but statistics indicate single parents without college degrees were among the most displaced formerly middle-class households.

However, if you managed to stay in the middle class during the last ten years, your quality of life and your income probably improved.

The Pew Research Center's findings include this:
The news regarding the American middle class is not all bad. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households. see
You wouldn't know it from media coverage, but middle-class household incomes actually increased by a third since the 1970s. That is adjusted for household size and inflation.

Samuelson believes this might be a positive sign for the future. The Great Recision might be an anomaly, favoring the most educated in our economy. Things might return to historical norms, if we're lucky. Personally, I disagree with this optimism because automation and algorithms are likely to disrupt the economy much more in coming years. Still, it would be nice if everyone advanced more evenly in the future.

Samuelson offers his own prescription for the future:
We need a prudent agenda — not a vendetta against the rich or the poor but a purging of policies that abet inequality with few offsetting benefits. Tax breaks that favor the rich, starting with the infamous "carried interest" subsidy, should be abolished. Limits on unskilled immigrants, who inflate the ranks of the poor, should be enacted as part of comprehensive immigration legislation. Half of Hispanic immigrants have low incomes, Pew says.
I disagree on principle with limits on movement between nations. We attract workers to the United States because we do have a vibrant economy and culture. Closing our borders won't fix inequality or address concerns about related social disparities.

Still, I agree that we need a saner, more equitable tax system without the absurd deductions and exceptions that benefit the upper-middle and upper-class households. (At the same time, as I have repeatedly posted, we are stuck with an income tax. That's just the way the Constitution is.)

Education remains key, along with stable households. Until we address the skills gap, we cannot address other forms of inequality of opportunity. And, offering more equitable opportunity isn't going to produce equal results because people will never achieve equally — for many reasons.


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