American Middle Class Is Being Destroyed – Pew Study

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert

December 22, 2015

Pew Study: American Middle Class is Steadily Shrinking

IN THIS ISSUE:

1. Pew Research: American Middle Class is Steadily Shrinking

2. Pew’s 5 Takeaways About the American Middle Class

3. American Middle Class Also Losing Ground Financially

4. American Middle Class – Wealth Gap Between Upper, Middle & Lower Incomes

5. Political Implications of the Shrinking American Middle Class

Overview

Most of us grew up believing that the so-called “Middle Class” represented the large majority of Americans. And for decades, that was true. In 1970, when such data was first collected, middle class Americans made up 62% of all US households.

Yet a recent study from the Pew Research Center found that for the first time in decades, the US middle class fell below a majority in early 2015. According to Pew’s data released earlier this month, the US middle class shrank to just below 50% (49.9%).

The Pew study earlier this year found that upper-income Americans and lower-income Americans combined now outnumber the middle class for the first time in recorded data. The question is whether this is a good thing or a bad thing.

The mainstream media would have us believe that the shrinking of the middle class is a very bad thing.  I would argue that the shrinking of the middle class is a function of more people moving into upper-income class status and the aging demographics of our population.

In any event, there are many interesting gems in this latest study from Pew, and I will try to hit the highlights as we go along today. It should make for a very interesting E-Letter.

Pew Research: American Middle Class is Steadily Shrinking

Americans in middle-income households have lost significant ground since 1970, according to the new Pew Research Center analysis of government data. The middle class has long been the country’s economic majority, but Pew’s new analysis finds that’s no longer true.

Meanwhile, the middle class has fallen further behind upper-income households financially, which now hold a larger share of aggregate household income than ever before in the 44-year period examined.

Pew defines middle-income households as those whose annual household income is two-thirds to double the US median household income, after incomes have been adjusted for household size. This amounts to a range of $42,000 to $126,000 annually, in 2014 dollars and for a household of three.

If you make less than $42,000 annually you are in the lower-income group, whereas if you make over $126,000 you are in the upper-income group. Lower-income households have incomes less than two-thirds of the median US income, while upper-income households have incomes that are more than double the median.

Share of US Adults Living in Middle Income Housing American Middle Class
American Middle Class

As you can see in the chart above, the middle class has been steadily shrinking as a percentage of all households, from 61% in 1971 to just under 50% (49.9%) by early 2015. Lower income households made up 29% of the total, whereas 21% were upper-income households early in 2015.

Obviously, these findings will make for some heated debates in the upcoming presidential election year. Those on the left will argue that the rising lower-income group is not acceptable, nor is the significant increase in the upper-income group. Those on the right will argue that the rapid rise in the upper-income group has been the result of more and more middle-income households doing well enough to advance into the upper-income bracket.

Pew’s 5 Takeaways About the American Middle Class

  1. Middle-income Americans are no longer the nation’s economic majority. In early 2015, there were 120.8 million adults in middle-income households, exceeded in number by the 121.3 million adults who were in lower- and upper-income households combined.This is the culmination of the long slide in which the share of adults in middle-income households has fallen from 61% in 1971 to just under 50% in 2015.
  2. The decline in the middle represents both economic progress and polarization. The shift shows progress in the sense that a larger share of Americans now live in upper-income households. Fully 21% of American adults in 2015 were upper income, compared with 14% in 1971, a 7-percentage-point increase. The increase in the share of upper-income adults was greater than the percentage rise in lower-income households. Some29% of U.S. adults were low income in 2015, compared with 25% in 1971.But the data also show increasing economic polarization: As the distribution of adults thins in the middle, it is bulking up most at the extreme ends of the income distribution – the lowest and highest tiers.
  3. Income has grown fastest among Americas upper households American Middle Class
    American Middle Class

    Over the long haul, America’s middle-income households have seen their income grow. From 1970 to 2014, these households’ median income increased from $54,682 to $73,392 (in 2014 dollars), a gain of 34%. Lower-income household incomes have grown, too, but not as much: 28% over the same 44-year period. Upper-income household incomes have grown the most, up 47% over this period.However, the nation’s economic progress over the past several decades masks financial setbacks since 2000. Because of the recession in 2001 and the Great Recession of 2007-09, overall household incomes fell from 2000 to 2014. The greatest loss was felt by lower-income households, whose median income fell 9% over this period; the median for middle-income households fell 4%, and that for upper-income households fell 3%.

  4. The share of U.S. aggregate household income held by middle-income households has plunged, from 62% in 1970 to 43% in 2014. Meanwhile, the share held by upper-income households increased from 29% to 49%. This shift is driven both by the growing size of the upper-income tier and more rapid gains in income at the top.There is also a growing disparity in the median wealth (assets minus debts) of these income tiers. Upper-income families, who had three times as much wealth as middle-income families in 1983, more than doubled the wealth gap to seven times as much in 2013.
  5. Over the years, certain demographic groups have fared better than others in moving up the economic ladder. Since 1971, older Americans (ages 65 and older) and African Americans have made notable progress in moving up the income tiers. Married adults also made significant progress over this 44-year period, and women overall made greater economic gains than men.Americans without a college degree stand out as experiencing a substantial loss in economic status since 1971, as do young adults ages 18 to 29. Hispanics overall are also more likely to be in lower-income households than in 1971, a change driven by the increasing share of immigrants in the Hispanic population in the past four decades.

American Middle Class Also Losing Ground Financially

The middle class is losing ground American Middle Class
American Middle Class

From 1971 to early 2015, 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 US aggregate income went to upper-income households in 2014, up from 29%

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