A new study from the Pew Research Center confirms what is obvious to any American with eyes. Income inequality is ripping apart the fabric of American society, as the number of wealthy people and poor people have grown notably, while the middle class continues to shrink. As the December 9th Pew study highlights, the American middle class is no longer the majority and is rapidly falling behind financially.
The headline of the new Pew Research study is that the numbers of the American middle class has been surpassed by those of the rich and poor. As of the first quarter of 2015, 120.8 million American adults were a part of middle-income households, compared with 121.3 million in lower- and upper-income households together.
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Middle class shrinking and squeezed
The Pew study showed that from 1971 to 2015 the aggregate household income has shifted away from middle-income to upper-income households, caused by the growth in upper-income households and huge gains in income at the top. Nearly 50% of U.S. aggregate income was brought home by upper-income earners in 2014, from a mere 29% in 1970. Of note, the aggregate income to middle-income households was only 43% in 2014, a huge drop from from 62% in 1970.
Moreover, middle class Americans are continuing to fall further behind financially in the 21st century. The median income of middle class households in 2014 was 4% less than it was 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.
According to the report, “…the far edges of the income spectrum have shown the most growth. In 2015, 20% of American adults were in the lowest-income tier, up from 16% in 1971. On the opposite side, 9% are in the highest-income tier, more than double the 4% share in 1971. At the same time, the shares of adults in the lower-middle or upper-middle income tiers were nearly unchanged.”
This new information results from Pew Research Center analysis of data from the U.S. Census Bureau and the Federal Reserve. The study takes a closer look at the changing size, demographics and economic circumstances of the American middle class. “Middle-income” Americans are adults whose annual household income is between two-thirds and double the national median, from around $42,000 to $126,000 annually in 2014 dollars for a household of three.
Of note, per this definition, the middle class represents 50% of the U.S. adult population in 2015, an almost 20% decrease from 61% in 1971.
Closer look at American middle class
The Pew study does point out that all of the news about the American middle class is not bad: “Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households.”
Of interest, a few demographic groups have done better than others in moving up the income ladder, but several have fallen down the ladder. Demographic groups making significant financial progress include older Americans, married couples and those of African-American ethnicity. That said, older Americans and black Americans still remain more likely to be lower income and less likely to be upper income than overall. Finally, Americans without any type of college degree are clearly suffering a loss in economic status.