The American Middle

Research shows increased stability for middle-income households, but the news isn't as simple as that sounds

Like the stereotypical, under-appreciated middle child, U.S. middle-income households have been somewhat left out of economic developments of the last half-century or so.

According to a new analysis from the Pew Research Center, over the past four decades, the proportion of middle-income American households has steadily decreased, from 61% in 1970 to 51% in 2010.

But now, there’s evidence that the tides may be (slowly) turning. Between 2010 and 2013, the share of middle-income households remained stable, at 51%.

Unfortunately, these findings are somewhat difficult to interpret.

For one, it’s hard to say exactly who comprises middle-income America—because the researchers note that it doesn’t necessarily mean “middle class.”

That’s possibly because “middle class” is a more ambiguous descriptor than “middle-income.” Indeed, one expert quoted in a recent New York Times article notes that being part of the middle class means living “comfortably on what you earn,” which still doesn’t provide concrete parameters for this socioeconomic group.

For the purposes of this study, the Pew researchers used data from the U.S. Census Bureau and defined middle-income as a household that earned between two-thirds and two times the median income. In 2013, that meant a middle-income household of three earned between $40,667 and $122,000 annually. (For high-income and low-income households, the median incomes were $166,623 and $23,659 respectively.)

Even more confusing? The fact that the share of middle-income Americans has stopped declining could be either good or bad news—depending on your perspective.

On one hand, a shrinking middle class is cause for celebration—after all, between 1970 and 2013, the share of high-income households rose from 14% to 20%. But, at the same time, the share of low-income households also rose during that time—from 25% to 29%—meaning that income inequality increased sharply.

Consider: In 1970, middle-income households made up 62% of total U.S. income—which makes sense, given that 61% of households qualified as middle-income. But by 2013, middle-income households made up just 44% of income, even though 51% of households qualified as middle-income.

While middle-income Americans’s piece of the income pie got smaller, high-income households’ portion grew, from 29% to 47%.

The research also highlighted the toll that the recession took on middle-income households’ earning power. To be sure, middle-income households earn 32% more today than they did in 1970—but that number would be a lot higher if not for the period of economic decline between 2000 and 2013.

As a result, the incomes of all households (low-, middle- and high-income) are roughly the same as they were in 1997.

Ultimately, middle America’s lack of financial progress may be a result of more than just wage stagnation. Other research points to budget-busters like the rapidly rising costs of college tuition and housing, which disproportionately affect the middle class.


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Tags: investing

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