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About the Shrinking Middle Class

 

Despite all the hand-wringing, America’s middle class shrank because its members moved into the upper-middle and wealthy classes. As economist Robert J. Samuelson reported in The Washington Post, between 1979 and 2014, the poor ($0 – $29,000) dropped to 19.8% of the population from 23.4%, the lower middle class ($30,000 – $49,000) dropped to 17.1% from 23.9%, and the middle class ($50,000 – $99,999) dropped to 32.0% from 38.8%. During the same years, the upper middle class rose to 29.4% of the population from 12.9% and the wealthy class rose to 1.8% from 0.1%.

Reports of wage stagnation are based on very misleading statistics. First, many of the studies were based on “households.” The problem is that “household” is a moving yardstick because the number of people in the average American household has been falling. As young Americans became more affluent, they moved out of their parents homes and started households of their own.

So, for example, if a single household includes two workers each of whom earns $20,000 a year, the combined household income is $40,000. If they each receive a $10,000 raise and can now afford to move into separate apartments, their combined wages total $60,000, but the average household income drops to $30,000.

Second, reports of income stagnation have excluded benefits from the studies. Finally, the reports tend to overestimate inflation. Correcting for all of the errors, wages – far from stagnating – have actually grown by over 50% since the seventies.

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There are 43 comments.

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  1. Member

    Some years back I was laid-off from Boeing and received a severance package of 57 weeks’ wages. I worked for them through the middle of August and found a new job at a slightly higher salary on September 1. I also got the equivalent of six weeks’ Boeing salary through freelance writing. Additionally my middle son graduated from engineering school the previous December and found an engineering job (at 60% of my salary) in mid February. He lived at home through the start of the next year. That gave the household an income of about 147 weeks of my weekly salary at Boeing – or 2-5/6 years worth of my expected annual income.

    My son moved out the last week of December, and the following year, I got just my annual income the following year. Household income was only 1/3 of what it had been the year before. I could be snarky and say “Thanks, Obama!” but he had nothing to do with the “precipitous” drop in household income.

    • #1
    • December 3, 2018 at 12:42 pm
    • 8 likes
  2. Contributor

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    • #2
    • December 3, 2018 at 1:17 pm
    • 3 likes
  3. Member

    My sister is a teacher, and my brother in law is a police officer. By their household income they are upper middle class. Even separately they are close to being in the upper middle class. Are they really though? What about cost of living?

    If I pay more out of pocket for fewer covered medical services, should I as an employee consider increased cost of benefits to my employer to be an increase in compensation to me? I will say that I do not consider the increased employer cost of providing my benefits to be an increase to my compensation. I’m paying more than I used to for the same benefits at best. That’s not a raise.

    This also doesn’t seem to account for people dropped out of the workforce.

    Using households might indeed create the distortion you claim. Not using households creates distortions of its own. Shouldn’t we be more interested in tracking by family instead of by individual? If more families need ever more incomes to sustain the household then that doesn’t sound like a healthy improvement either.

    • #3
    • December 3, 2018 at 1:49 pm
    • 2 likes
  4. Member

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Because: “Figures do not lie but Liars do Figure.”
    They aren’t interested in being honest, only massaging statistics to fit their narrative..
    Always, always look to see what agenda is being promoted before accepting any narrative.

    • #4
    • December 3, 2018 at 1:52 pm
    • 6 likes
  5. Member

    Richard Fulmer: Second, reports of income stagnation have excluded benefits from the studies.

    This is one of the more popular gambits. It’s almost ubiquitous in any statistic published about poverty, or hunger. If the statistics were adjusted for benefits, you’d wonder why liberals aren’t taking a victory lap or having a Mission Accomplished celebration. LBJ’s war in poverty has been won many times over. After benefits, the fraction of poor and hungry in America is vanishingly small. But they need to (1) keep showing poverty as a problem to justify increases in the programs to combat it and (2) the after benefits numbers would raise uncomfortable questions about why people aren’t getting off the anti-poverty programs.

    • #5
    • December 3, 2018 at 2:07 pm
    • 3 likes
  6. Member

    Ekosj (View Comment):

    Richard Fulmer: Second, reports of income stagnation have excluded benefits from the studies.

    This is one of the more popular gambits. It’s almost ubiquitous in any statistic published about poverty, or hunger. If the statistics were adjusted for benefits, you’d wonder why liberals aren’t taking a victory lap or having a Mission Accomplished celebration. LBJ’s war in poverty has been won many times over. After benefits, the fraction of poor and hungry in America is vanishingly small. But they need to (1) keep showing poverty as a problem to justify increases in the programs to combat it and (2) the after benefits numbers would raise uncomfortable questions about why people aren’t getting off the anti-poverty programs.

    Couldn’t it be instead that benefits are simply too difficult to account for considering that both benefits received and cost of benefits changes so much (both in opposite directions apparently). Also, that benefits are subjective in a way that cash is not.

    • #6
    • December 3, 2018 at 2:40 pm
    • 2 likes
  7. Member

    Ed G. (View Comment):

    Ekosj (View Comment):

    Richard Fulmer: Second, reports of income stagnation have excluded benefits from the studies.

    This is one of the more popular gambits. It’s almost ubiquitous in any statistic published about poverty, or hunger. If the statistics were adjusted for benefits, you’d wonder why liberals aren’t taking a victory lap or having a Mission Accomplished celebration. LBJ’s war in poverty has been won many times over. After benefits, the fraction of poor and hungry in America is vanishingly small. But they need to (1) keep showing poverty as a problem to justify increases in the programs to combat it and (2) the after benefits numbers would raise uncomfortable questions about why people aren’t getting off the anti-poverty programs.

    Couldn’t it be instead that benefits are simply too difficult to account for considering that both benefits received and cost of benefits changes so much (both in opposite directions apparently). Also, that benefits are subjective in a way that cash is not.

     

    The value of in-kind benefits like housing or insurance benefits might be a bit challenging, but lots of others are cash … AFDC, SNAP etc … and Samuelson seems to have managed just fine. The numbers are there, they just make you work for them.

     

    • #7
    • December 3, 2018 at 3:39 pm
    • 1 like
  8. Member

    Normalizing properly for inflation is difficult, since some things have gotten more expensive and some things less. However, it my perception that a Lower Middle income in the late 80’s – early 90’s bought the same lifestyle as middle income in the 2000’s. and an upper middle now.

    • #8
    • December 3, 2018 at 3:54 pm
    • 2 likes
  9. Coolidge

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Economics and social sciences have but a single purpose: to influence policy. So, the studies must tell the right story, in order to influence the right policy. Statistics on human behavior aren’t much use if you aren’t an insurance company or a government in search of something to regulate.

    • #9
    • December 3, 2018 at 4:27 pm
    • 2 likes
  10. Member
    Richard Fulmer Post author

    Ed G. (View Comment):
    Couldn’t it be instead that benefits are simply too difficult to account for considering that both benefits received and cost of benefits changes so much (both in opposite directions apparently). Also, that benefits are subjective in a way that cash is not.

    The benefits to which I referred are those provided by employers – medical insurance, life insurance, 401ks, etc. Employers should be able to provide a dollar amount for their employees to researchers. When I was starting out, employee benefits averaged about a third of a worker’s wages/salary. They may be less now.

    • #10
    • December 3, 2018 at 4:35 pm
    • 1 like
  11. Member
    Richard Fulmer Post author

    OkieSailor (View Comment):

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Because: “Figures do not lie but Liars do Figure.”
    They aren’t interested in being honest, only massaging statistics to fit their narrative..
    Always, always look to see what agenda is being promoted before accepting any narrative.

    If a study is based on households rather than individuals, assume the author is lying.

    • #11
    • December 3, 2018 at 4:41 pm
    • 1 like
  12. Member

    Richard Fulmer (View Comment):
    If a study is based on households rather than individuals, assume the author is lying.

    Well, we are just under $20k per individual in our household.

    Or $40k per person of legal working age.

    Or $80k per working individual (which is also household).

    So… should we massage those numbers all the way down to dependents? Legally (by tax law), that seems the most reasonable. Income normalized by dependents.

    • #12
    • December 3, 2018 at 6:03 pm
    • 2 likes
  13. Member

    Stina (View Comment):
    So… should we massage those numbers all the way down to dependents? Legally (by tax law), that seems the most reasonable. Income normalized by dependents.

    Should also add, this would show incredible increases in income, too, because no one is having babies anymore.

    • #13
    • December 3, 2018 at 6:05 pm
    • 1 like
  14. Inactive

    There has indeed been an apparent increase in the standard of living. The problem is that the increase was built on debt. Just the share of the Federal debt per citizen has increased from $3685 in 1979 to $66,315 today. Add in $1.48 trillion of student loan debt, crisis levels of state and municipal debt, and the tsunami of unfunded pension liabilities coming due, among other fiscal calamities bearing down on us, and it won’t be long before the illusory wealth increase since ’79 is exposed for the fantasy it is.

    • #14
    • December 3, 2018 at 6:36 pm
    • 3 likes
  15. Member

    Richard Fulmer (View Comment):

    Ed G. (View Comment):
    Couldn’t it be instead that benefits are simply too difficult to account for considering that both benefits received and cost of benefits changes so much (both in opposite directions apparently). Also, that benefits are subjective in a way that cash is not.

    The benefits to which I referred are those provided by employers – medical insurance, life insurance, 401ks, etc. Employers should be able to provide a dollar amount for their employees to researchers. When I was starting out, employee benefits averaged about a third of a worker’s wages/salary. They may be less now.

    Yes employers can provide the cost of non cash benefits. My point is that non cash benefits are subjective in a way that cash is not. If my employer pays more for less benefit to me that is definitely not a raise for me. If employer cost were included it would count that as a raise.

     

    • #15
    • December 4, 2018 at 5:21 am
    • 1 like
  16. Member

    Ed G. (View Comment):
    Yes employers can provide the cost of non cash benefits. My point is that non cash benefits are subjective in a way that cash is not. If my employer pays more for less benefit to me that is definitely not a raise for me. If employer cost were included it would count that as a raise.

    While the 401k benefit and health care are huge objective benefits, the other things included in the “total value” assessment are… questionable.

    Whether it’s a 5% discount on an annual pass to Universal (which we don’t buy), discounts on Haverty’s furniture (we don’t buy), or a waiver on security deposits for some rentals (we don’t rent), the value added is nothing. Yet, those are in the “total value”.

    As for the 401k, that is a replacement at less cost to the company of the pension system that is mostly defunct in the private sector. I suppose ESOPs would also be an objective value added.

    Vacation time and sick time only count if your work creates an environment that allows you to take time off or compensates you for hours you lose (they don’t and loss happens).

    • #16
    • December 4, 2018 at 6:06 am
    • 1 like
  17. Coolidge

    Stina (View Comment):

    Richard Fulmer (View Comment):
    If a study is based on households rather than individuals, assume the author is lying.

    Well, we are just under $20k per individual in our household.

    Or $40k per person of legal working age.

    Or $80k per working individual (which is also household).

    So… should we massage those numbers all the way down to dependents? Legally (by tax law), that seems the most reasonable. Income normalized by dependents.

    Don’t forget to add in your pets. Animals are people too.

    • #17
    • December 4, 2018 at 6:38 am
    • Like
  18. Member

    Spin (View Comment):

    Stina (View Comment):

    Richard Fulmer (View Comment):
    If a study is based on households rather than individuals, assume the author is lying.

    Well, we are just under $20k per individual in our household.

    Or $40k per person of legal working age.

    Or $80k per working individual (which is also household).

    So… should we massage those numbers all the way down to dependents? Legally (by tax law), that seems the most reasonable. Income normalized by dependents.

    Don’t forget to add in your pets. Animals are people too.

    No. No they aren’t.

    • #18
    • December 4, 2018 at 7:10 am
    • Like
  19. Member

    Richard Fulmer (View Comment):

    OkieSailor (View Comment):

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Because: “Figures do not lie but Liars do Figure.”
    They aren’t interested in being honest, only massaging statistics to fit their narrative..
    Always, always look to see what agenda is being promoted before accepting any narrative.

    If a study is based on households rather than individuals, assume the author is lying.

    Or, it could just be a different yet valid way of looking at it.

    There are six people living in my house, but we are one economic unit. I am the only one with income. Applying the income figures by person makes much less sense in this circumstance than applying a household standard. And I am not lying.

    • #19
    • December 4, 2018 at 9:02 am
    • 2 likes
  20. Member

    Ed G. (View Comment):

    Or, it could just be a different yet valid way of looking at it.

    There are six people living in my house, but we are one economic unit. I am the only one with income. Applying the income figures by person makes much less sense in this circumstance than applying a household standard. And I am not lying.

    And we should want to see, at least, stability in household incomes because one of the primary reasons given for not having children is thinking oneself not financially secure.

    https://www.google.com/amp/s/m.mic.com/articles/amp/123051/why-millennials-dont-want-kids

    And no amount of trying to show data to show how we are better off is going to help people feel better. If it were just one person, I’d look at it individually, but it’s a mass movement of people feeling financially insecure.

    Maybe that’s less about where we currently are and more a foreboding of what the near future may hold, and I’m not thinking that assessment is far off.

    A depression as a natural economic cycle is likely due, there are bubbles in the tech sector, the US is massively in debt, and people have not been secure in their employment for at least a decade (company loyalty went the way of the Dodo bird). Also, it requires more work and more education (more debt) to make an average salary.

    • #20
    • December 4, 2018 at 11:55 am
    • 1 like
  21. Member

    Stina (View Comment):

    Ed G. (View Comment):

    Or, it could just be a different yet valid way of looking at it.

    There are six people living in my house, but we are one economic unit. I am the only one with income. Applying the income figures by person makes much less sense in this circumstance than applying a household standard. And I am not lying.

    And we should want to see, at least, stability in household incomes because one of the primary reasons given for not having children is thinking oneself not financially secure.

    https://www.google.com/amp/s/m.mic.com/articles/amp/123051/why-millennials-dont-want-kids

    And no amount of trying to show data to show how we are better off is going to help people feel better. If it were just one person, I’d look at it individually, but it’s a mass movement of people feeling financially insecure.

    Maybe that’s less about where we currently are and more a foreboding of what the near future may hold, and I’m not thinking that assessment is far off.

    A depression as a natural economic cycle is likely due, there are bubbles in the tech sector, the US is massively in debt, and people have not been secure in their employment for at least a decade (company loyalty went the way of the Dodo bird). Also, it requires more work and more education (more debt) to make an average salary.

    Yes, and for those households with two incomes – that comes with a cost too. Additional household costs yes, but also additional societal costs in terms of less participation in formal and informal community units. In many ways, I do not view the need for dual income households to be an improvement despite the internet of things, cell phones, and cable.

    • #21
    • December 4, 2018 at 12:13 pm
    • 2 likes
  22. Member

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Sometimes, people are asking the wrong question. Besides all the difficulties mentioned above, income is not the only or best measure of wealth. Net worth is closer to a measure wealth, a term frequently used in the OP and comments. There may only be a tenuous connection between wealth and current income. As a population ages, net worth becomes more important because it is what people use in retirement.

    Retirees tend to have lower incomes in retirement than while they worked but if they saved during their work lives, they will use their net worth (401k’s, home equity) to meet living expenses. These individuals will show up in a lower income bracket while living better than they did while working. The effect of a rising median age (30 in 1980 to 38 in 2017) can partly explain any statistical reduction in income that partisans can come up with.

    • #22
    • December 5, 2018 at 9:57 am
    • 1 like
  23. Member

    Susan Quinn (View Comment):

    Why can’t we get reliable people using reliable measures in order to get reliable results?? In this day and age, with the sophisticated systems we can create, it is ridiculous to have to correct for these numbers! Great post, Richard

    Because the society we are measuring is dynamic. The price of everything changes year to year. The inflation rate is used to compensate for that, but in practice it is a very crude measure. The computer mainframe you paid millions for in 1971 was a dawdling, disconnected sluggard compared to the phone in my pocket. Mainframes sold in 1980 were on a par with or slower than the Intel 386 PCs sold in 1985. The notebook or laptop computer available today so completely outstrip the public library and television and movie theater of 1971 for breadth and depth of offerings it is a completely different world. In 1971, the consumer video industry was a decade in the future. Today, for the cost of a movie without popcorn or soda pop we can subscribe to a streaming service that offers thousands of movies and shows for a month.

    Cars now tell us what is wrong with them. Microwave ovens now brown the bacon as well as heat it. Bills can be paid online instead of trusting to the mail system. Friends and confidants are now only an email or text away, almost instantly vs. letters and telegrams. What were very expensive long distance calls in 1971 are now part of the standard service. Flying on airlines is way more affordable, just don’t expect to get a meal out of it.

    I have more books on my phone than I have on my 17 bookshelves. All accessible at any time, any where. As well as thousands of hours of podcasts available on demand, already stored on my phone, as opposed to whatever a dozen or two radio stations may be offering at the moment. And I have access to millions of music tracks via my phone compared to maybe 10,000 on vinyl and CD. Nothing needs to go out of print again, the storage required for any particular book or recording is practically approaching zero.

    Playing chess in 1971 meant going to a scheduled tournament or connecting with a handful of friends to sit at a physical board. Finding an opponent who was a good match for your strength as a player was unlikely. Today the Internet guarantees a game against many comparable capable players at any time of the day or night.

    And then there’s medicine. In 1971 we didn’t have all of these probes used to examine our digestive tracts directly and laparoscopic surgery was unheard of. Surgery meant cutting us open wide. Heart transplants have gone from a very risky procedure first demonstrated in humans in 1967 to a standard capability with a mechanical heart option.

    And 1972 is the last year a human traveled beyond Earth orbit.

    • #23
    • December 5, 2018 at 11:03 am
    • Like
  24. Member

    Sisyphus (View Comment):
     The inflation rate is used to compensate for that, but in practice it is a very crude measure.

    This a million times. People have no idea how much trouble this causes. 

     

    • #24
    • December 5, 2018 at 11:09 am
    • 1 like
  25. Member

    The figure of $50,000 seems like a lot of money to be making in 1979. The only vague financial memories I have about the Carter administration are bad — skyrocketing inflation and unemployment high enough to make a certain number of independent-minded voters willing to elect Ronald Reagan. People in other parts of the country may have made more money in 1979.

    Two of the ranges are $30,000 to $49,999 and $50,000 to $99,999. I wonder how many in the $50,000 to $99,999 group were just barely in that category in 1979. I think the mean or median might have been closer to $60,000 or $65,000 in 1979. For the $30,000 to $49,999 category, were the statistics clustered close to $31,000 and/or $49,000 or were things more evenly distributed?

    What percentage of households in 1979 had wives or two spouses who were working full-time jobs as compared to 2014?

    • #25
    • December 5, 2018 at 2:25 pm
    • 3 likes
  26. Member

    The Cloaked Gaijin (View Comment):
    The figure of $50,000 seems like a lot of money to be making in 1979.

    I think you misunderstood the table. The dollar values are all referenced to 2014. Comparing nominal incomes across several decades would make no sense without correcting for inflation, with understanding of the limitations of such correction.Using the CPI, $50k in 2014 corresponds to about $14k in 1979. Adjust the other values accordingly. Using the GDP deflator would give a slightly different answer.

    • #26
    • December 5, 2018 at 3:32 pm
    • 2 likes
  27. Member

    If more people are moving in to the upper income brackets, does that not redefine the income bracket for ‘middle’ class?

    • #27
    • December 6, 2018 at 6:28 am
    • 1 like
  28. Thatcher

    Richard Fulmer:

    Despite all the hand-wringing, America’s middle class shrank because its members moved into the upper-middle and wealthy classes. As economist Robert J. Samuelson reported in The Washington Post, between 1979 and 2014, the poor ($0 – $29,000) dropped to 19.8% of the population from 23.4%, the lower middle class ($30,000 – $49,000) dropped to 17.1% from 23.9%, and the middle class ($50,000 – $99,999) dropped to 32.0% from 38.8%. During the same years, the upper middle class rose to 29.4% of the population from 12.9% and the wealthy class rose to 1.8% from 0.1%.

    Reports of wage stagnation are based on very misleading statistics. First, many of the studies were based on “households.” The problem is that “household” is a moving yardstick because the number of people in the average American household has been falling. As young Americans became more affluent, they moved out of their parents homes and started households of their own.

    So, for example, if a single household includes two workers each of whom earns $20,000 a year, the combined household income is $40,000. If they each receive a $10,000 raise and can now afford to move into separate apartments, their combined wages total $60,000, but the average household income drops to $30,000.

    Second, reports of income stagnation have excluded benefits from the studies. Finally, the reports tend to overestimate inflation. Correcting for all of the errors, wages – far from stagnating – have actually grown by over 50% since the seventies.

    Richard,

    I am no fan of statistical argument but I think the formula for inflation adjustment needs to be revealed. Trust me, if you were making $29,000 per year in 1979 you were not poor. The number of people in a household is irrelevant. In constant dollars, how much are people making 2014 v. 1979? If anything the change in households will make it worse. There are far more duel income households now with far fewer dependents.

    Doesn’t look right at all.

    Regards,

    Jim

    • #28
    • December 6, 2018 at 11:39 am
    • 1 like
  29. Member
    Richard Fulmer Post author

    James Gawron (View Comment):
    Trust me, if you were making $29,000 per year in 1979 you were not poor.

    See drlorentz’s post (#26) above. That’s 29,000 2104 dollars. The table was “normalized” to 2014 (i.e., inflated) dollars so that it compared apples to apples. $29,000 today is not a lot.

    • #29
    • December 6, 2018 at 12:56 pm
    • Like
  30. Member
    Richard Fulmer Post author

    Ed G. (View Comment):
    There are six people living in my house, but we are one economic unit. I am the only one with income. Applying the income figures by person makes much less sense in this circumstance than applying a household standard. And I am not lying.

    Again, the problem is in comparing a 1979 “household” to a 2014 “household.” In 2014, a “household” represented fewer people than it did in 1979. Suppose that in 1979, a pound was 16oz and by 2014 it had been redefined to 8oz. A study that used this moving “yardstick” to prove that the average weight of Americans had doubled – to 300lb from 150lb – between 1979 and 2014 would be very misleading to say the least.

    • #30
    • December 6, 2018 at 1:05 pm
    • Like
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