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The Erosion of the Middle Class

We’ve all heard about the erosion that’s taking place. It’s true. The middle class is shrinking and a recent study by the Pew Research Center confirms what we already knew. The December 9, 2015 report, The American Middle Class is Losing Ground, states that the middle class is no longer the majority and is falling behind financially, and alas the data supports those conclusions.

For purposes of this report the “middle class” range was $42,000-$126,000 (a pretty big range) and is based on 2014 dollars. The key findings in the report were as follows:

ST_2015-12-09_middle-class-01After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data.

In at least one sense, the shift represents economic progress: While the share of U.S. adults living in both upper- and lower-income households rose alongside the declining share in the middle from 1971 to 2015, the share in the upper-income tier grew more.

Over the same period, however, the nation’s aggregate household income has substantially shifted from middle-income to upper-income households, driven by the growing size of the upper-income tier and more rapid gains in income at the top. Fully 49% of U.S. aggregate income went to upper-income households in 2014, up from 29% in 1970. The share accruing to middle-income households was 43% in 2014, down substantially from 62% in 1970.

And middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.

The issue for all of us is what are the implications of these findings for us as a country. The economy of the United States during post World War II, now 70+ years and counting, has been fueled by a growing and thriving middle class. Particularly last century, the growth of the suburbs was driven by middle class families which largely were comprised of husband/wife and 2+ children. Obviously in today’s world there are no typical households any longer and the rising Millennial workforce does not view suburban life as the ideal lifestyle.

But at the same time, the polarization of rich/poor never bodes well for the future of any society, ours included. The data does not suggest a trend which can’t be stabilized or a seismic societal shift but rather a gradual one which still can be troublesome over a long period of time.

The idea that each generation will surpass their parents is no longer a given. Furthermore, unrest in our cities is in part a function of polarization of wealth. Layering in a growing concern about our safety as a nation and unrest in the world, our future may be rocky financially and otherwise.

A strong middle class has served our country well since World War II. Let’s hope the declines it has faced will moderate in the future. Time will tell.




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