Social structure in the United States is in the midst of vast changes. The lower, middle, and upper classes are shifting their lifestyles as the national wealth flows in new directions. Statistics abound suggesting the “middle class” is vanishing, never to return. The problem with statistics about the middle class is that the term itself is somewhat indefinable. In fact, according to FactCheck.org a majority of Americans identify themselves as “middle class” or “upper middle class” or “working class.”
For years, the most common way to define the middle class was to refer to a specific income bracket. Using data from the U.S. Census Bureau, it is possible to quantitatively measure increases and decreases in the numbers of people in that bracket. In 2008, this data split the earnings of all people in the United States into five quintiles. Many commentators and analysts identified the middle class as belonging in the third quintile. The lower limit of this quintile was $39,001 and the upper limit was $62,725. According to the Census data, the number of Americans within this income bracket is indeed declining.
Real median household income declined by 3.6 percent from 2007 to 2008, according to the Census Bureau. Changes in the composite structure of the middle class combined with other factors such as technological innovation and income growth have drastically shifted what it means to be a member of the middle class. Once, a family of four could afford a house, a car, education and entertainment on a single paycheck. Today, the same family of four needs two incomes and debt in order to stay on top of their finances.
To complicate matters further, data from the U.S. Treasury suggests that the middle class is declining, but the reason is the members of the middle class are experiencing upward mobility. An op-ed published in the Wall Street Journal reported on the results of a study that tracked tax filers aged 25 and up from 1995 to 2005. Controlling for inflation as measured by the Consumer Price Index, over 58 percent of the poorest income bracket in 1996 moved to a higher income bracket by 2005. Of those, over 26 percent made it into the middle class income bracket, and over five percent made it into the highest income bracket.
So what’s the truth?
So what is the real story about the declining middle class? The truth is undoubtedly somewhere in the middle. The obvious explanation is that the middle class is not a fixed group of people. Income brackets stay the same, but people change throughout their lives. The poor can become rich and the rich can become poor, often in a very short amount of time.
The economy is almost alive, adapting to internal and external changes organically. While the middle class is declining in absolute terms, overall more members are becoming richer than they are becoming poorer. The economic crisis of 2008 led to much ink being spilled about rising income inequality and the destruction of the middle class. Income mobility changes the entire picture about income inequality and changing class structure.
To be sure, not all of the developments have been positive. Local and regional real estate markets have become stratified with the wealthiest zip codes experiencing tremendous demand. To make matters more complicated, even the definition of middle class by income brackets is relative to where the hypothetical family of four is located. In Beverly Hills, even a six-figure salary may be considered middle class, thanks to the high prices for almost everything!
It’s all relative really
In the end, “middle class” is a term over which a lot of hullabaloo is raised but the truth is complex and hard to summarize in a few key talking points. Technology has increased productivity, and income growth has resulted in greater upward mobility. The middle class does appear to be declining, but all of the data seem to suggest that this is a good thing.