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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
Right in the middle, even with my high fallutin gubmint job.
In the NY Metro area, the middle and upper class numbers need to be doubled.
I understand the desire to want to change the classes based on the cost of living, but I believe the fact that you live in a place like NY Metro means you are in a higher class, even if you can’t buy the same things.
Thank you, this gives some interesting perspective.
For Silicon Valley, it seems about right. A full time single worker in a service industry is bottom middle. A recent college graduate also seems to align with our experience. For our family with 4 kids it also seems right.
At some point, the cost of living in a particular region has to play into your definition of the classes. Especially considering the fact that the higher wages in those areas sometimes act as nothing more than an offset for those increased expenses.
Cost of living isn’t some random variation that plagues some areas, it’s a direct consequence of higher demand to live in those areas. People are compensated more highly in those areas but only enough as is necessary to hire people. People accept a lower standard of living for the benefit of living in higher quality/more desirable areas. You may think you’re a lower class, but that’s because much of your compensation is essentially non-monetary.
This is pretty cool, Mike.
No comment :-|
OK, I retract my previous statement. Looking at this, I feel like I can afford more kids. I’ve been toying with the idea of becoming a foster parent for a while. It’s only 2 years since my youngest left the nest. Hmmmm.
If you decide to do it, I think you would make an excellent foster parent :-)
This doesn’t make sense to me. High cost areas need people who do the grunt work just like any other area, so living there doesn’t make you automatically in the upper class. And usually the cost that goes way, way up is the basic cost of housing, something you can’t really do without. And if that’s where your job offer was, you may not want to live there but you have to. So–while the chart is interesting, it should be adjusted for cost of living by area.
Ha!
-E
But it isn’t really “the basic cost of housing” which goes up, Merina. It’s the costs of space and privacy that go up.
Edited to add: the cost of commute time is also an issue.
Wow, if this helps you decide to care for more kids I’ll consider it one of my most successful posts ever.
I think much of what irks people about this is that they’re not used to thinking of staying near family, for example, or having a job (as opposed to not having a job) as compensation. Instead, they think of these things as stuff you just have to do. That is, they see maintaining family ties and being employed as obligations, not rewards.
Ergo sentiments like, “I hate living here, but that’s where the jobs are,” or “If it were just me, I’d move, but there’s family to think of.” That job availability and family connections are part of what makes an otherwise-icky location “desirable” is true in the revealed-preference sense, but people still don’t feel like they desire the location.
Mike, I’m assuming that this is predicated on AGI (Gross Income minus above-the-line deductions) like most of the income class tables. Is that right, or wrong?
But the cost of the minimum space to house yourself, family and however much stuff you deem necessary varies greatly by location, even with commute thrown in. But yes, if you want more space and privacy, way higher cost.
Correct.
Also correct. Living there doesn’t make one “upper class,” but it does make them a higher class than if they would be doing grunt work in a less desirable area.
Right. Otherwise just anyone could live there and there would be no mechanism to keep the number of people down to a tolerable level.
You don’t have to at all. You might feel something similar to compulsion, but that is your extreme desire to have a job in the first place. Someone else would be happy to take that job.
In conclusion, no. ;)
Correct.
Mike,
Mr R and I were discussing the other day the difference between preferences and budget constraints, why it’s so hard for ordinary people to tell them apart, and how even economists, when they talk about imposing a budget constraint, are often really talking about imposing a preference that so many people would agree with that pretty much everyone forgets that it might also be a preference.
Upon prodding, Mr R explained that modeling something as a budget constraint is “just an analytical tool.” In practice, even economists will implicitly include preferences in a budget constraint. So, for example, if you use a literal budget as a budget constraint (generally a very sensible thing to do), what might be left unsaid is that the budget could be bigger if you were willing to take out an unwise loan. In other words, the constraint itself is a preference, albeit a wise one.
Even Bryan Caplan himself can mistake very-strong-preferences-that-practically-anyone-would-assent-to for hard constraints, as I found out when he tried to use budget constraints to define physical illness in opposition to mental illness. That non-economists intuitively categorize many more strong-preferences-that-practically-anyone-would-assent-to as constraints rather than preferences is even less surprising.
Yep. The chart worked well to reflect where I perceive my family to be. Actually, it looks like you came very close to what our income is.
Yeah, I asked Bryan, and he still stands behind that paper. I haven’t come to a conclusion on what’s the truth and what is simply a semantic argument.
While we can all imagine some hypothetical “total budget” that diminishes upon impairment, nearly any specific budget constraint you can come up with can be surpassed by someone with a physical illness. The illness just makes it more difficult.
For example, Caplan is just wrong that “If you have the common cold, the good of ‘not-sneezing’ suddenly falls on the wrong side of your budget set.” All that happens is that not-sneezing becomes much more costly: you must now take drugs, or steam your face, or take any number of steps known to reduce sneezing. But almost no one is willing to do whatever it takes to not-sneeze during a cold: that would be a ridiculous preference.
Likewise, many other clearly physical illnesses impose tremendous costs on people, but no hard, measurable budget constraint. Double amputees climb Everest, diarrhetics finish marathons… Asthma is clearly a physical illness, but imposes no hard, measurable budget constraint that I can think of, it just makes certain preferences annoyingly more costly.
Most of what we dislike about illness is how it changes (“limits”) our behavior, and behavior determines revealed preference. When we can endure an illness without it affecting our behavior much, we’re inclined to say it’s “not bothering” us.
This is very much in line with the economic environment in Florida. Nice work.
Bingo.
As circumstances have me thinking about leaving California, and possibly even the US, on an accelerated schedule, I’ve actually done some very preliminary research on an important variable: housing costs. I live in a house in Los Angeles County built in 1960, with a 15-year fixed rate mortgage with $100K and change left that I’m paying into the principal on. If I do nothing differently, it’ll be paid off in 10 years. Zillow currently estimates I could sell the house for $505K. If I look at places that look congenial to retire to given my wife’s and my requirements—the Pigeon Forge, TN; Brunswick, GA; or Cary, NC areas—I could buy a house that’s a maximum of 10 years old, with the square footage we need, deck, lake or river front, etc. for ~$200K. I could pay off the rest of the mortgage, still have $100-$150K left to put in my retirement accounts, and be debt free.
By any reasonable definition of the phrase, I’m economically upper class.
I finally have a chart proving I’m not low class!
I like the concept, but the reluctance to consider cost-of-living differences seems based on circular reasoning.
“Bottom upper class” and “top middle class” have no inherent meaning. They only mean something if we are talking about the actual lives that these people lead. If we are saying that “$X purchases a “bottom upper class lifestyle” we need to define what that lifestyle includes.
I understand that everyone’s choices will make that determination itself problematic. But some things can be said about it on which, after serious debate, there might be some consensus. For example (only to demonstrate the issue) there is the question of whether home ownership is within range for the average person in the class. There is the quality of the schools where they live. Do they have any money left over for retirement savings?
If a married couple making $100,000 in San Francisco cannot afford a car, or to own a house, have a 2-hour commute to work, can afford to eat in a restaurant once a month, and take one vacation every two years, while a married couple making the same amount in Raleigh, North Carolina can afford a really big house with a yard, have two cars, commute 10 minutes to work, eat in a restaurant twice a week, and take two vacations every year, nice ones at that, concluding they are in the same class seems strained to say the least.
The question then becomes why doesn’t the SF couple move to Raleigh since they would be better off on the same income? There are clearly other reasons they are staying in SF that are of more benefit than what you are considering. Given the same income, they are choosing to live with less of the options you’ve listed because there are other options you haven’t that are of greater value to them.
“Greater value” doesn’t translate into “higher class.”
I may spend all my time in my underwear eating Doritos, because that is the choice of greatest value to me, but it does not put me into a higher income class than people who have more to spend than me.
Suppose there is a woman who lives in San Francisco because she has joint custody of her children with an ex-husband who lives there, and the court will not easily be persuaded to allow her to take her children to North Carolina.
Are you saying that she is in a higher income class because she opts to keep her children?
Great project, but it does have to be adjusted by region.
Apply your numbers to New Jersey, and the folks you have listed as upper middle class are actually going to go broke.