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Income Classes, Defined
I created the table below when I realized that people’s intuition about who was in the American middle class corresponded (roughly) to low $30k to around $100k in annual income and that the logarithm of those numbers happened to be about 4.5 and 5, respectively. To me, this range seems about right for married couples. I then extended the principle to create ranges for the other classes. So, lower class for married couples is between $10^4 ($10,000) and $10^4.5 ($31,623), and upper class is between $10^5 ($100,000) and $10^5.5 ($316,228).
| Class | single | married | 1 kid | 2 kids | 3 kids | 4 kids | 5 kids |
| bottom lower | $7,071 | $10,000 | $12,247 | $14,142 | $15,811 | $17,321 | $18,708 |
| lower | $10,379 | $14,678 | $17,977 | $20,758 | $23,208 | $25,423 | $27,460 |
| top lower | $15,234 | $21,544 | $26,386 | $30,468 | $34,065 | $37,316 | $40,306 |
| bottom middle | $22,361 | $31,623 | $38,730 | $44,721 | $50,000 | $54,772 | $59,161 |
| middle | $32,821 | $46,416 | $56,848 | $65,642 | $73,390 | $80,395 | $86,836 |
| top middle | $48,175 | $68,129 | $83,441 | $96,349 | $107,722 | $118,003 | $127,458 |
| bottom upper | $70,711 | $100,000 | $122,474 | $141,421 | $158,114 | $173,205 | $187,083 |
| upper | $103,789 | $146,780 | $179,768 | $207,578 | $232,079 | $254,230 | $274,600 |
| top upper | $152,342 | $215,443 | $263,863 | $304,683 | $340,646 | $373,159 | $403,058 |
| bottom wealthy | $223,607 | $316,228 | $387,298 | $447,214 | $500,000 | $547,723 | $591,608 |
To find the corresponding ranges for households of other sizes, I scaled it by the square root of the number of people (multiply singles bracket by sqrt[household size]) because I’ve heard that’s a good approximation of the additional costs when you add a person.
I believe these numbers include all but the 1% highest incomes and the bottom 6%, but I wonder how many people actually make/live on less than $10,000 in America after transfer payments and retirement savings are included.
How well does this match up with your intuitions about where the classes are? Find your family size and income and let me know if it feels it defined you correctly. The numbers shown are the LOWER BOUND for the bracket. For instance, the “bottom middle” class goes from $32,623 – $46,416 for married with no children.
If we scale this class definition to the rest of the world, world poverty ($1.25 per day) is about four full “classes” below the middle class, and Tim Cook, CEO of Apple is eight full classes above the middle class.
Published in Culture, Economics
How is it wrong to say you must be at least upper middle class to even be able to buy into New Jersey?
She doesn’t have to live in SF. She can live outside it and commute. She doesn’t have to move to NC solely either. Yes, there are exceptions to why people would choose to stay in a place they can’t afford, but the majority of people live where they live because they choose to live there. They have placed value on other aspects (weather, local culture, access to arts, historicity,networking, family ties) above housing and vacations.
Note that saying an alternate choice is possible isn’t saying it’s a choice many people would find morally acceptable, or wouldn’t judge others harshly for making.
A small percentage of women have chosen occupations, or gotten themselves into family situations, that involve spending long stretches apart from their own minor children. We may judge these women as selfish – even as inhuman monsters – for choosing to live so separated from their children. But it has been done.
Women politicians and opera stars sometimes have children, leaving them home with nanny or granny while they’re off globetrotting. And I know of one divorce where joint custody turned into the father’s primary custody because the father deliberately accepted a job-offer requiring moving several states away in order to get the child further away from the mother. The mother, unemployed at the time, in theory could have moved to follow father and child, but didn’t.
The problem is the raw numbers were not CPI adjusted. For the math to work correctly you need to have all income adjust by the Zip codes CPI because CPI is not evenly distributed across each income stratifier. The rate of error is going to be single digits but there can be a noticeable difference when you adjust for CPI on segments when the Income was not adjust for CPI.
What I would love to see is a CPI adjust break-out that includes transfer payments. It would be fascinating to see because I bet in a lot of metropolitan areas upper middle become lower middle.
I heard on an NPR science show that there’s some research to show that logarithmic mathematics comes naturally to us; e.g., people who are enumerate notice differences on a logarithmic scales without instruction, but but have to learn arithmetic.
Assuming that is correct, I wonder if that natural affinity is showing in our emotions, here.
I note that you are relying on assets rather than income to reach this conclusion. This points to a deficiency in Mike H’s definitions, namely they focus only on income. The example of GGoG shows that time horizon is important in the assessment of wealth since retirement wealth is defined principally by assets and not income. Contrariwise, a person at the beginning of adulthood would weigh income more, though assets still play a role in perceived wealth.
Human perception tends to be logarithmic, not linear, because of the large dynamic ranges required. This is why sound is measured in decibels (dB), which is a logarithmic scale. Likewise, the visual system has to be able to handle many orders of magnitude in illumination, from full daylight to night.
Income also spans a large dynamic range so it’s natural for the distribution to be considered in logarithm space. For more insight into the role of log space for distributions see Benford’s Law and the related Zipf Law and Pareto Principle. The latter was developed specifically in relation to income distributions. Here’s a more scholarly discussion.
The premise is not correct, that the income would be the same. Earnings for similar positions differ substantially among regions. To move to Raleigh would likely mean a lower income, though perhaps not as much lower as the cost of living in Raleigh. On net, it might be best to move to Raleigh from a strictly financial perspective.
Nevertheless, there is some regional adjustment required because pay is not equal across the US. I know from experience that some firms have explicit local cost-of-living adjustments, i.e., the salary for the same job category is adjusted by a factor that depends on location. Consider also the phenomenon of companies relocating to regions that have cheaper labor. This may change as employees work remotely; it will be interesting to see how this develops.
That was on purpose. Income classes defined. This is because that’s how most people view class, as opposed to “wealth class,” but since no one actually defines what they mean even by “income class” I thought it would be useful to try.
The best way to think about these classes are for people who are still earning money and saving for retirement. So I think it applies quite well for people at least between the ages of 22-55.
My intuition goes with Tommy on this one. First, if your family lived there for generations (perhaps before NJ went $$ crazy) there’s no buy-in required; you’re already living there. Second, businesses in NJ know it costs more to live there and are likely inflating pay scales to compensate. There are all kinds of ways to get around your central premise, which makes this all feel incomplete.
Bureaucratic realities alone don’t make this so easy to quantify. Missouri has an income tax and Florida does not. How can you not take that into account, particularly as income levels rise? Suppose most parts of California aren’t crazy in most respects, but then everybody pays a premium on gasoline. Midwestern states are much cheaper for fuel. Why is that discounted? Is it any different to say someone is in a slightly higher class because they moved where gas prices are higher?
If your premise is “in a perfect economy where everything costs the same everywhere, here are the classes” – kudos on a cool project (never occurred to me that logarithms could model this). For those that want to extend it further, the only true baseline is what can each dollar of my income buy compared to everyone else.
We were explicitly discussing the same income in two different locations not the same job in two different locations.
And yet you refer to wealth in your highest category: bottom wealthy. Obviously wealth plays a role even in your thinking.
When the term “middle class” is used it generally refers to social class, which is not strictly based on income as in this example. As I noted in my comment, GGoG made no reference whatsoever to income in his comment. You can see that the term class is often understood differently – not exclusively measured by income. If you wish to define a new kind of class, income class, so be it. Be advised that it is not identical to what is commonly understood by the term class. A person worth millions of dollars with expensive possessions and low income would not be viewed a lower class by most observers. The narrower definition fails to capture either the financial circumstances or social standing of individuals in a society, as GGoG so aptly illustrated.
Your comment was in the context of the same person, with a particular set of qualifications, moving from one location to another. What leads you to believe that this person could gain a higher-level position in the new location? That’s what would be required if there is differential pay for the same position. It may not be possible for the San Franciscan to move to a cheaper region and retain the same salary. Indeed, it’s unlikely.
That’s precisely what I meant by rejecting the premise: that the same income could be achieved in any region of the country by the same person.
Of course the same job in different locations pays different amounts, that’s why businesses move, but we’re not talking about that. We’re talking about the same income in two different places. The assumption that someone is materially worse off because they can’t live the same lifestyle as someone on the same income somewhere else assumes they want to live the same lifestyle in the first place. They could make more by moving to NC because they have unique skills. They could make less, although in that case they wouldn’t move unless prices were low enough to offset or they had some other non-monetary reason, but then we’re no longer talking about two people making the same income. We’re also way in the weeds coming up with all sorts of hypothetical reasons people might or might not move and might or might not make based on jobs we haven’t even defined.
All of that is true, but it strikes me as irrelevant to determining one’s income class. These things which are not monetized and perhaps can’t be, cannot be assumed to make up for a very high cost for all the things money must buy.
It would be as if I was comparing my income class to my next door neighbor using your table and your conceptual understanding of it. We both live in the same place and have the same income. But, he argues, he is in a higher income class than I because
Now, he might be a happier person, but I submit that he is not in a higher income class.
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Now, I’m not interested in moving. Even if I find a place that has more of everything that life has to offer at a lower cost of living. Why? Because this is my home, my children and grandchildren live here, and money doesn’t enter into it that much. If my family all move away and leave me here by myself does that put me into a lower income class? If it does I sure don’t know what “income class” means.
But if I were contemplating moving, you can bet I’d be on that “Cost of Living Calculator” to see what the move would do to my standard of living, i.e., whether it would put me into a different income class. And so would you.
Where did I say two people making the same income are in different income classes?
I live about an hour and half commute from DC. The cost of living in my county is higher than many other places in the country, but extremely reasonable compared to the cost of living close to DC. As a result, our county is full of people who are lower level government workers, or people who work for the District (cops, metro workers, etc.) who choose to commute because they can afford to live in a nice home in a good neighborhood with good schools. If they lived closer to their jobs, the cost of living continues to rise. The same quality of life is not attainable on their salary. I have to say that where there are extremes in cost of living (Ex: Metro areas of NY and SF, and the belly of DC where the govt teats are located), the chart probably needs adjusting.
Taxes also have to play a role. My daughter and son-in-law are both engineers working in northern MD. They live in Delaware because it saves them about $20,000 per year in taxes. That’s a lot of money for a very short difference in commute time. (It only takes my daughter about 20 minutes to get to work in rush hour traffic.) So their wealth is materially changed by a minor geographical difference.
Having said all of that, I think that unless you live in an area with extremely high or low cost of living, this chart is probably pretty accurate.
Or maybe it’s just better to relabel that particular category, and be real scrupulous about sticking to distinct terminology when discussing income.
Having a hard time thinking of a good name to replace “bottom wealthy” off the top of my head… but I’m sure one is possible.
Oh geez, you try to come up with a name for “above upper.” A hate arguments based on semantics. My actual table is far bigger. The only reason I included that last line was to put an upper bound on the top class I was concerned with. I don’t think this is the same as wealth. I was trying to create something based on how most people view income, not the perfect representation of all things regarding wealth/class.
I also made the point that sometimes living somewhere inherently means you must be of a “higher income class” if you haven’t already amassed wealth. Just living in America means we are all much higher class than most of the rest of the world. We have a much higher cost of living, but few would want to get by in Bangladesh even if income and cost of living was proportionally lower.
So, while it may seem like there’s some “inflation” that shouldn’t be counted as real income or wealth, I think that “inflation” is mostly reflected in more desirable living arrangements. (i.e. – people bid up the costs because it’s better to live there for most people, even if it’s just because that’s where the jobs are.)
I think we’re talking about two different things. Maybe I’m misunderstanding Mike, but I took it as solely defining things by income level not standard of living which would be income level relative to the your locality. He’s already mentioned he’s excluding wealth and assets which are another way of defining class.
I have to say, this does help me gain a bit of perspective. Mr. Amy and I are solidly in the middle middle. We just feel poor because most of our friends are between the top middle and lower upper.
The relative standard of living is also changing as more and more things are available online. Outside of the essentials of housing, food, and energy, almost anything else can be purchased online, and those prices tend to be uniform outside of local taxes applied to the purchase. If I go to Amazon, I’m paying the same price as someone living on the other side of the country for the same goods.
Axe, (are we supposed to call you that or MWA?), in your last example, I would say you and your neighbor are in the same income class, but he has a higher standard of living because of non-monetary benefits he derives from living there that you don’t. However, you may have things like living near your family that actually make you happier than he is. That’s why we can’t say that someone is objectively worse off simply because they don’t live in the same manner as someone else. We can say whether their basic needs are met. They may really like being able to spend their afternoons on the beach even though they have to put up with a tiny apartment and public transportation, but if you put them in the mountains with a nice big house and car, they’d be miserable because they prefer to live near the ocean.
You didn’t. But someone in my hypothetical who saw things as you see them would say so.
What you did say was this:
So, my logic, building on yours, is as follows:
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Therefore,
Or are all the intangibles only meaningful when comparing city to city? Or are they only meaningful when we “assume” they must exist or he would have moved, but not when we actually identify what they are?
If that’s all he meant to demonstrate it’s not very interesting. I fail to see why what he admits are arbitrary numbers to start with shouldn’t be infused with additional meaning by adjusting for cost of living.
I don’t know if this additional point has been made already, but obviously these numbers will have to be adjusted over time, say, ten years from now, as the cost of living changes in dollar terms.
The name of the category is tangential. I’m not sure why you and Mike are focusing on the first two sentences of my comment to the exclusion of the rest. For instance, using the term middle class confounds how the term is generally understood with a much narrower concept. My comment was addressing that potential confusion as well as questioning the utility of this narrow measure.
As I mentioned before, one’s own perceptions of financial circumstances, as well as the perceptions of others, are conditioned on other factors. Some of these factors increase in importance as a person approaches retirement. I also disagree that income is “…how most people view class.” It’s certainly not how social scientists view class, going all the way back to Max Weber.
Because Mike and are both incredibly literally-minded people, and Mike’s post was about levels of income, not about all the other things that go into our various notions of social classes :-)
Sure. I agree that class is cultural, and associated with certain levels of accumulated wealth, not just income. For that matter, I think Mike does, too.
If I know Mike, he’s unlikely to deceive himself into thinking his table has more utility than it does. It breaks down one thing, income. That’s it. We all know there’s a bunch of stuff left out. Nonetheless, a tidy vignette of just one thing has some utility.
That is true that those numbers would only apply for a static period of time without being adjusted across time for inflation.
No, as I understand Mike’s table we are saying C1 and C2 are in the same income class by definition based on nominal income. Their cost of living would be the same (assuming the same basic needs and no special conditions like illness) but their standard of living could vary depending on how much enjoyment they derive from things beyond simple income measure. That gets into how we define standard of living (purely monetarily or not), and we might also say they’re in different social classes which also usually are more broadly defined that solely on income (old money vs nouveau riche, for example).