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.