A New Report on the Middle Class

August 23rd, 2012 at 3:25 pm

The Pew Research Center just released a report worth a close look, called “The Lost Decade of the Middle Class.”  (FTR, I wrote this a year ago…I await royalties.)

The title comes from the observation that real median income or the more comprehensive measure of net worth were lower at the end of the last decade than at the start (see figures below).

That’s historically unusual, if not unprecedented.  For years, starting in the 1980s, I wrote that median wages and incomes were diverging from productivity growth and were growing considerably more slowly than they had in the past.  But they were at least growing in real terms—i.e., they were lagging behind productivity but at least beating inflation.  Now, they’re lagging both.

Before digging into what’s behind these changes, some definitions and a few other factoids of note from the report:

–There is no accepted definition of middle-class families so everyone is this biz has to make one up.  Pew uses an admittedly arbitrary but reasonable measure: households with between 2/3 and two times the median income, which amounts to about $40-120K in 2011 dollars.  Yes, you can definitely find families with higher incomes than that in some part of the country—e.g., the urban northeast—who could make the case that they’re middle class too, but there’s no perfect measure here.

–As shown in the second chart below, real median net worth—assets minus debts—cliff-dove 2007-10, down a massive $60K, a 40% loss.  Part of that dive is a “correction” from the unsustainable heights of the housing bubble—for middle-class homeowners, housing, not cap gains or Cayman Island accounts, is at the heart of their wealth portfolio.  But the fact that middle-class net worth is back to 1980s levels is important and unsettling.

–The middle class may have been doing less well over time, but measured as noted above, they were always the largest share of the population and held the largest share of income.  They still comprise the largest share of households, but just barely, at 51%, and their share of total income, trending down for decades, is now slightly below that of the top tier group.

What’s behind all of this?

That’s not a simple question and it’s a lot of what we’re about here at OTE…see here and here, e.g.

But one thing I thought about re the “lost decade” theme is the picture of job growth by decade you see here (pretty much decadal—I tried to go business cycle peak-to-peak).  Employment growth just sucked in the 2000s, not to put too fine a point on it.  As I alluded to above, working middle-class families can’t depend on their wealth portfolios to make ends meet and get ahead.  For them, it’s about the paycheck.

In this sense, a slack job market is the worst enemy of the middle class.  All the political hurly-burly about budget deficits, tax changes, the 10-year budget window—don’t get me wrong—that stuff’s hugely important and I’ll continue to beat the drum on it.  But we can get all of that right and if we don’t have a strong, tight, lastingly (not bubble-and-bust) job market, I don’t expect these middle class trends to improve much.

More to come on ideas to get there…and yes, I know few are listening now.  But given the stakes, that’s not going to stop me.

Print Friendly

7 comments in reply to "A New Report on the Middle Class"


  1. D. C. Sessions says:

    One thing jumps out at me: for the past 30 years, the Fed has been so afraid of inflation that they set an effective policy of “no wage inflation.” In turn, that meant enough slack in the labor markets to ensure zero real wage growth, regardless of productivity.

    As long as the effective policy is to clamp down on the economy whenever real wages increase, nothing much else will matter. And it’s rather clear that lip service to the “dual mandate” or not, the Fed is more dedicated to the somewhat arbitrary 2% inflation ceiling than they are concerned with any measure of unemployment.


  2. Misaki says:

    >In this sense, a slack job market is the worst enemy of the middle class. All the political hurly-burly about budget deficits, tax changes, the 10-year budget window—don’t get me wrong—that stuff’s hugely important and I’ll continue to beat the drum on it. But we can get all of that right and if we don’t have a strong, tight, lastingly (not bubble-and-bust) job market, I don’t expect these middle class trends to improve much.

    “68% of childless women say they would prefer having more time over more money, compared with 62% of women with children, according to a 2011 More magazine survey of 500 college-educated professional women over 34.”

    http://online.wsj.com/article/SB10001424052702304791704577420130278948866.html

    “Most workers willing to take a pay cut”:
    http://www.msnbc.msn.com/id/36141641/

    And of course, the complete lack of interest in supporting a work ethic that would lead to higher wages for the poor and middle class.

    People want to be seen as ‘selfish’ since that is the entire basis of US culture, and it is also a great way to be seen as happy so that people can answer the question “If someone thinks you’re happy, are you?” in the affirmative; but for the same reason they don’t want to be seen to be supporting actions that actually seem selfish.

    Even if the result is “externalities” like the shooting in Aurora. http://jaredbernsteinblog.com/the-tragedy-in-colorado-and-policy-failure/

    Tho it was interesting to find that the President kept perspective on that event: “For those who are still struggling to recover and for all the victims of less publicized acts of violence that plague our communities every single day.”

    http://takingnote.blogs.nytimes.com/2012/07/20/the-shooting-in-aurora/

    So enough with the little things. Of course the Republican party is going to do whatever it can to exploit public opinion to get elected, including alternately accusing the President of spending too much or not spending enough; this is at best a distraction since after all they have no more idea how to fix the economy than the Democratic party does, but if they did and said nothing people would be even more upset with the political process than they are now.

    People will not accept the idea that the government is corrupt as long as 1) Wall Street has high profits and yet 2) unemployment remains high.

    Since #1 follows from the fact that inflation exists, and to an extent people will tolerate a low rate of inflation because they dislike taxes just as much especially when the government is in “job creation for the poor” mode, trying to convince people that the government is NOT wasting money is pointless.


  3. Misaki says:

    Also note this might have been why Krugman has not been more supportive of the “working less” idea, the closest being just his blog post about John Q. Wheelerdealer reducing his work to make $20m instead of $30m:

    http://krugman.blogs.nytimes.com/2011/08/09/fred-excels/
    (Oh, apparently it was the second post on the topic: http://krugman.blogs.nytimes.com/2011/01/28/fred-goes-global/)

    “One of Issawi’s Laws, which I can’t seem to find online, explained the laws of progress or lack thereof. First, the total amount of good and evil in any system remains constant. Second, most things get steadily worse. In particular, people get worse as they grow older, because they become more like themselves. The second proposition does not contradict the first, because some things get much better.”

    I commented on that post— http://krugman.blogs.nytimes.com/2011/08/09/fred-excels/?comments#permid=81

    …but there was no result (in the form of support for the idea). This would have been “long-term effect” concern listed in [spam filter] http://goo.gl/2qNSq .

    Since I already proved that it would have a long-term positive effect with the argument about signal accuracy, I did not see a longer explanation of specific problems as morally necessary for support of the idea.


  4. urban legend says:

    Business people who rail on and on about high taxes and do not get that it’s all about demand, and that you cannot have adequate demand without virtually the entire population enjoying wages high enough to have some discretionary income, and without high certainty of either retaining a current job or finding a new one quickly, are truly the stupidest people on earth.


  5. Jake says:

    The study shows that upper class and the lower class grew in size while the middle class declined. The upper class share of total adults grew to 20% while their share of total dollars grew to 46%. Unless we insist on policies that will help the middle class, our policies will increasingly favor growth of the upper class. We need these policies as a counter-weight to the glut of labor coming from globalization which is decreasing wage gains. Until that glut gets soaked up, we need policies for the middle-class.


  6. Comma1 says:

    “In this sense, a slack job market is the worst enemy of the middle class. All the political hurly-burly about budget deficits, tax changes, the 10-year budget window—don’t get me wrong—that stuff’s hugely important and I’ll continue to beat the drum on it. But we can get all of that right and if we don’t have a strong, tight, lastingly (not bubble-and-bust) job market, I don’t expect these middle class trends to improve much.”

    Exactly. We need to stop the distractions and focus on jobs.


Leave a Reply

Your email address will not be published.

Current day month ye@r *