America’s shrinking middle class is ‘barely keeping up’
[Yahoo! Finance, Getty Images]
America’s middle class has been shrinking over the past 50 years as rising inequality pushes more households into the upper- and lower-income brackets.
The share of aggregate household income held by the middle class has plunged since 1970, according to recent research by Pew Research Center, squeezing the mass of the population in the middle.
The middle class “has been barely keeping up,” Isabel Sawhill, a senior researcher at the Brookings Institution, told Yahoo Finance. “In other words, their incomes [after accounting for inflation, taxes, and government benefits] have gone up a little bit, but not very much. And the fact that their incomes haven’t gone up very much for over four decades, tells you a lot because normally we’d expect middle-class incomes over that period of time to grow a lot.”
While the definition of middle class varies, the Pew researchers defined it as an annual household income that was two-thirds to double the national median income in 2020, accounting for household size. In other words, a family of three making $52,000 to $156,000 per year would be considered middle income.
Overall, household incomes have risen steadily since 1970 — but most of those gains have been concentrated among upper-income households. Incomes grew at a much faster pace among upper-income households (69%) than among middle-income households (50%) and lower-income households (45%).
The distance between the classes has also grown: In 1970, the median income of upper-income households was 6.3 times that of lower-income households and 2.2 times that of middle-income households. By 2020, it was 7.3 times greater than the median lower class income and 2.4 times greater than the median middle class income.
“It’s reflective of this long-running trend towards rising inequality in the U.S.,” Rakesh Kochhar, senior researcher at Pew Research Center, told Yahoo Finance. “Broad societal changes and technology and the decline of unions and the role of globalization — all these things have fit into what we observe as the shrinking of the middle class and the shift of income to upper-income households.”
Kochhar added that income inequality “has been an ongoing process every decade from 1970 through 2010. This last decade is really the first decade in which there is not significant change in the share of middle class.”
According to Sawhill, a number of worrying implications come with inequality where it is.
“I just think the fact that our politics are what they are right now means that we have all of these big long-term crises that we’re not dealing with,” she said. “The most obvious is climate change or nuclear war or what have you. But amongst them, I think, is ever-growing inequality.”
‘Women are trying to do it all’
Women entering the workforce has been a key driver in middle-class incomes over time.
“I mentioned that the middle class hasn’t been doing very well, and to the extent they’ve had any increase at all and their incomes, it’s only been because there are more two earners,” Sawhill said. “And it’s not because wages have gone up, especially for men. So the problem that creates a course is that women are trying to do it all.”
The Pew report corroborated these findings: “Married adults and those in multi-earner households made more progress up the income ladder from 1971 to 2021 than their immediate counterparts. In the long haul, adults in single-earner households are among the groups who slid down the income ladder the most from 1971 to 2021.”
Any stability that comes from dual earners was tested in the past two years, however, especially when 2.4 million women dropped out of the labor force in the first year of the coronavirus pandemic. Women’s labor force participation has been climbing back, but it still remains below pre-pandemic levels.
“We think a lot of that is because of these childcare expenses as well as just the difficulty of finding good childcare and worries about it,” Sawhill said. “And that if you want to get women back into the labor force, you’ve got to do more.”
A number of policies have been proposed to lift up middle-class families, working women in particular. According to Sawhill, the Child Tax Credit, one of the more ambitious COVID policies, had a “big effect” on child poverty.
Child care is”one of the biggest expenses, if not the biggest expense that you face,” Sawhill said. “And so making this free or very inexpensive would have been a huge, huge benefit to the middle class.”
‘About 40% of both Black and Hispanic adults were lower income in 2021’
Another notable trend is that even though Black adults also saw notable gains in income status — they were the only group that did not experience a decline in the share of the middle class — the economic status of Black and Hispanic adults still lags behind white Americans and other groups.
“Although Black adults made some of the biggest strides up the income tiers from 1971 to 2021, they, along with Hispanic adults, are more likely to be in the lower-income tier than are White or Asian adults,” the authors wrote. “About 40% of both Black and Hispanic adults were lower income in 2021, compared with 24% of White adults and 22% of Asian adults.”
This is likely compounded by the differences in income versus overall wealth. Black Americans experience lower homeownership rates and those that do own homes are more likely to have their homes undervalued.
Additionally, a recent report by Brookings partners Child Trends and the Urban Institute found that structural racism may have a part to play in the economic outcomes of Black and Hispanic Americans. Using a Social Genome Model (SGM) analytical tool, the researchers found that removing discrimination during pivotal points in the lives of Black and Hispanic youths would dramatically increase their lifetime educational attainment and earnings.
After removing barriers statistically faced by Black and Hispanic youths, “the team found that these youth were more likely to obtain an Associate of Arts or a Bachelor of Arts degree under these conditions; the simulation also resulted in greater equity in earnings across racial and ethnic groups,” the SGM report stated. “For example, Black men’s lifetime earnings were estimated to increase from 39 cents for every dollar in lifetime earnings by White men to 91 cents per dollar.”
The results of the model are striking, Sawhill stressed.
Many people think “that a lot of the problem is that children in these families are born poor and born with much less educated parents, and they just start off from a very uneven place, you know, they’re way behind from the time that they’re born,” she said. “Well, it turns out that what happens to them after they’re born is at least as important as what happened to them when they were born.”
By Adriana Belmonte and Grace O’Donnell