Equity: Why Is The Middle Class Shrinking?

Dec 16, 2015

Credit Pew Research Center

  The middle class is no longer the nation’s economic majority. That is according to last week’s Pew Research Center analysis of government data, and a local economist says the trends for the nation are likely duplicated in Illinois.

In 2015, according to Pew, 130.8 million adults were middle income, while 121.8 million were in lower- and upper-income brackets.

“In at least one sense, the shift represents economic progress,’’ the report states. “While the share of U.S. adults living in both upper- and lower-income households rose alongside the declining share in the middle from 1971 to 2015, the share of the upper-income grew more.”

In the report, in 2014 for a family of three, annual income between $31,000 and $42,000 was lower income; over $42,000 to $126,000 annually was middle income; and more than $126,00 was upper income.

 

Credit University of Illinois Chicago

  “One of the big points that they made, which has been fairly well documented in other research as well, is that the share of the population that’s in that middle tier has been declining for the last say 40 years or so and the share in the upper tier and the lower tier has been increasing,’’ says Darren Lubotsky, an economist at the University of Illinois Chicago who specializes in  social policy issues.

This has occurred, he says, because “the pattern that’s been going on in the labor market  is that what you might  think of as sort of  medium-skilled jobs have been declining  so that the  job  growth  in the last few decades has primarily been in the low-skilled, low-wage jobs — for example, people who work in restaurants,  people who work in cleaning companies  and also the high scale- high-wage jobs for people who work in information technology,   the high-skilled service sector things —  so the jobs that have been created over this period have been at the low-skilled and high-skilled end. “

Is it a bad thing that the middle class is shrinking?

“In a sense we want to be careful to distinguish changes in inequality from changes in the level of income of everybody,’’ he says. “There’s a cliché that a rising tide lifts all boats. We might be less worried about inequality, if everybody’s income was growing. But income, the lower sort of wage distribution, has not been growing, and that’s a cause for concern.”

Other issues in the Pew report:

  • “Middle-income Americans have fallen further behind financially in the new century. In 2015, the median income of these households was 4 percent less than in 2000. Morever, because of the housing market crisis and the Great Recession of 2007-2009, the median wealth (assets minus debt) fell by 28 percent from 2001 to 2013.”
  • “Before the onset of the Great Recession, the median wealth of middle-income families increased from $95,879 in 1983 to $161,050 in 2007, a gain of 68 percent. But the economic downturn eliminated that gain almost entirely.”
  • “The median income of upper-income households increased from $118,617 in 1970 to $174,625 in 2014, or by 47 percent. That was significantly greater than the 34 percent gain for middle-income households, whose median income rose from $54,682 to $73,392. Lower-income households fell behind even more as their median income increased by only 28 percent over this period.”
  • “Although 2014 incomes are generally higher than in 1970, all households experienced a lengthy period of decline in the 21st century thanks to the 2001 recession and the Great Recession of 2007-09. The greatest loss was felt by lower-income households, whose median income fell 9 percent from 2000 to 2014, followed by a 4 percent loss for middle-income households and a 3 percent loss for upper-income households.”

Read more about income trends in the state in these  Illinois Issues issues stories on the shrinking middle class and the divide between economic classes.