Is the middle class vanishing up or down?

Analyzing Census Bureau data, economist Mark Perry concludes:

The “middle-class is disappearing” as we hear all the time, but it’s because middle-income households in the US are gradually moving up to higher-income groups, and not down into lower-income groups.

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That conclusion is way different than we’ve been hearing from Dem Presidential candidates … and the mainstream media.

So, let’s dig a little deeper…

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First, Perry’s methodology:

To adjust for inflation Perry restated the CB data into 2017 dollars.

Then, Perry tagged households with incomes over $100,000 to be upper-class … and households with incomes less than $35,000 as lower class.

More on this later…

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Applying these rules, Perry observes:

In 1967, only 9% of US households (only 1 in 11) earned $100,000 or more (in 2017 dollars).

In 2017, more than 1 in 4 US households (29.2%) were in that high-income category, a new record high.

In other words, over the last half-century, the share of US households earning incomes of $100,000 or more (in 2017 dollars) has more than tripled!

At the same time, the share of middle-income households earning $35,000 to $100,000 (in 2017 dollars) has decreased over time, from more than half of US households in 1967 (53.8%) to less than half (only 41.3%) in 2017.

Likewise, the share of low-income households earning $35,000 or less (in 2017 dollars) has decreased from more than one-third of households in 1967 (37.2 percent) to below one-third of US households last year (29.5 percent), a near-record low.

Perry’s advice:

Compare the above picture of a prosperous America with millions of middle-class households moving up into higher income groups to the narratives we hear all the time that the American middle class is: losing ground, falling behind, collapsing, stagnating, disappearing, etc.

Hmm.

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Yeah, but…

Perry is one of my favorite economic reads, and I’d like to believe his his middle class conclusion but…

There may be a flaw in his logic.

He did adjust all the data for inflation … that’s good.

But, his cut-off points — $35,000 and $100,000 are pretty arbitrary … and, they don’t reflect increases in the standard of living.

There are more things to buy these days then there were i50 years ago … and, some of those “things” have become quasi-necessities.  Think: air conditioning, cell phones, near-mandatory college.

Said differently, $35,000 may have bought all a family needed 50 years ago … but falls short today.

According to the Pew Research Center, 52% of American adults were in middle-class households as of 2016, with a median income of $78,442. For a family of three, a middle-class income can be anywhere between $45,195 and $135,585. Source

Adjusting the cut-off points (upward) over time — to reflect increasing living standards — might change Perry’s conclusion (and give Sanders & Warren some fodder).

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One Response to “Is the middle class vanishing up or down?”

  1. Dixie Catlett Says:

    I agree that $35,000 is hardly the cusp of lower middle class today for families of 4. There is a big difference between poverty and low income, and the Government usually uses 200% of the poverty level as the edge of eligibility for assistance. Poverty level is currently about $25,000 for family of 4, so $50,000 might be considered the top edge of low income/maybe the lower edge of middle income for many studies. But it’s important to note that government assistance applied above the 200% of Poverty level also is artificially moving some into a more middle class existence. According to recent data from the Census Bureau, “Social Security continued to be the most important anti-poverty program, moving 26.1 million individuals out of poverty. Refundable tax credits (I’m thinking especially the earned income and chikdcare tax credits) moved 8.1 million people out of poverty.” It would be interesting to see how those programs have trended over the years to support the middle class lift Perry is describing.

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