Behind the Middle-Class
Funk
The recession hurt, but some troubles have been
simmering for 40 years.
By WILLIAM A.GALSTON
President Obama is
working hard to refocus attention on the middle class, and rightly so. While a
decent society will provide opportunity and, when necessary, direct assistance
to the poor, the long-term health of our economy and our democracy depends on a
prosperous, self-confident middle class.
That's not what we've
had in recent years. Median incomes fell sharply during the Great Recession and
have barely begun to recover. Despite recent signs of recovery, housing—the
principal source of wealth for middle-class households—remains priced about 25%
below its pre-recession peak. Many workers who lost middle-income jobs have
found only part-time or low-wage replacements and doubt that they will ever
regain their pre-recession standard of living. Not surprisingly, many
middle-class parents now doubt that their children will enjoy comparable lives
Concern about the middle
class is not new. Compared with the quarter-century after World War II, recent
decades—though not disastrous—were disappointing, even before the Great
Recession. Many economists define the middle class as those adults whose annual
household income is between two-thirds and twice the national median—today,
that means roughly $40,000 to $120,000. By this standard, according to the Pew
Research Center, the middle class is significantly smaller than it once was. In
1971, it accounted for fully 61% of adults, compared with 14% for the upper
class and 25% for the lower class.
Four decades later, the
middle class share had declined by 10 percentage points to just 51%, while the
upper class share increased by six points and the lower class by four. The U.S.
income distribution is still a bell curve, but the left and right tails are
fatter and the hump in the middle is lower.
This means that the middle class is less economically and socially
dominant than it once was. Relatively speaking, more Americans are enjoying
affluent lives at the same time that more are just barely making it (if at
all). But that doesn't mean the middle class got poorer. During those 40 years,
Pew calculates, the median income of middle-class households (adjusted for
inflation) grew by 34%. The median grew for the others as well—by 43% for
upper-income households and 29% for those with incomes below the middle class.
This isn't surprising, because the median income for all U.S. households rose
by 32% during that period, from $44,845 in 1970 to $59,127 in 2010. Indeed, 86%
of middle-class Americans, and 84% of all Americans, enjoy higher incomes than
their parents did.
By some measures the
middle class has done better, and by others worse, than the Pew study suggests.
Pew uses a definition of income that excludes employer-provided health
insurance, non-cash transfers such as food stamps and the redistributive effect
of taxes. If these additional sources are included, the rate of increase in
median household income between 1979 and 2007 is significantly higher. The
increase looks substantially smaller if, as some economists suggest, we use the
rate of medical-cost inflation rather than the consumer price index to
determine the real value of employer-provided health insurance.
Another complication:
Forty years ago, average household size was 3.2 persons. Today, it is only 2.5,
a drop of 20%. Most analysts (including Pew's) adjust for this change, because
a smaller number of persons per household means that income per person rises
faster than the overall household income numbers would suggest. But some
researchers disagree, on the ground that smaller households reflect, in part,
lower birth rates, which are in turn influenced by gloomier economic realities
and expectations.
Finally, rising
household incomes reflect increasing hours of work per year to a greater extent
than wage and salary increases. Between 1979 and 2007, on average, annual hours
worked by middle-income households rose from 3,007 to 3,335—fully 10%, a larger
increase than for any other income group. Some of the additional work reflects
expanding opportunities for women. But much of it came in response to economic
pressure and represents time that men as well as women reluctantly diverted
from their children—hardly an unambiguous improvement in family well-being.
We can argue about how squeezed the middle class was in the
decades between the end of the postwar expansion and the onset of the Great
Recession. But two things are clear: The coping mechanisms the middle class
employed in those decades (fewer children, more hours worked, more borrowing
against home equity) are played out, and it will take middle-class households
years to recover from the recession-induced blow to their income and wealth. If
we cannot restore a vigorously growing economy whose fruits are widely shared,
the struggles of the middle class will persist, and our democratic distemper
will deepen.
From the Wall Street Journal
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