Fewer, Poorer, Gloomier: The Lost Decade Of The American Middle Class

Filed under: Features |

It’s been a tough decade for America’s middle class, those middle-income workers who shoulder most of the burden for keeping the economy humming by reliably earning and consuming.

These stark assessments are based on findings from an August 2012 Pew Research Center survey that included 1,287 adults who describe themselves as middle class.

A steady job is important to middle class workers. Census Bureau photo
A steady job is important to middle class workers. (Census Bureau photo)

Similar shares of whites (51%), 48% of African-Americans and 47% of Hispanics said they are middle class. However, government data shows that whites have higher median income and much more wealth than blacks or Hispanics.

Older American adults ages 65 and older (63%) are more inclined than all other age groups to call themselves middle class. They are the least inclined to say they are lower class at 20%.

These finding were supplemented by the Center’s analysis of U.S. Census Bureau and Federal Reserve Board of Governors data.

Fully 85% of self-described middle class adults said it is more difficult now than it was a decade ago for middle class people to maintain their standard of living.

Who’s responsible for this mess?

Of those who feel this way, 62% said “a lot” of the blame lies with Congress, while 54% blame banks and financial institutions, 47% blame corporations. Another 44% blame the Bush administration, 39% blamed foreign competition and 34% blamed the Obama administration.

Just 8% blame the middle class itself “a lot.”

Ten percent of the middle class has disappeared, pushed either up or down in income.

This middle-income tier included 51% of all adults in 2011. In 1971, using the same income boundaries, it had included 61%.

The downbeat take on the economic situation comes at the end of a decade during which, for the first time since 1945, mean family incomes declined for Americans at all income levels.

The middle-income is defined in the Pew Research report as all adults whose annual household income is two-thirds to double the national median. Only the ranks of middle-income group shrank in size, an overall trend during the past 40 years.

Gender, Race And The American Middle Class
Perceptions of being middle class in America have noteworthy differences by race, age and gender.Conversely, younger adults ages 18 to 29 are more likely to say they are lower or lower-middle class.
A full 39% said this in the most recent survey, compared with 25% who said so in 2008.Men, 46%, are somewhat less likely than women, 53%, to consider themselves middle class.
A somewhat larger share of men, 51%, and 54% of women said they were middle class in 2008.

The hollowing of the middle has been accompanied by a dispersion of the population into the economic tiers both above and below.

The upper-income tier rose to 20% of adults in 2011, up from 14% in 1971 and the lower-income tier rose to 29%, up from 25%.

However, in the same period, only the upper-income tier increased its share in the nation’s household income pie.

It is now takes in 46% of household income, up from 29% four decades ago.

The middle-income group now takes in 45%, down from 62% four decades ago.

And the poor did get poorer. The lower income group takes in 9% of household income, down from 10% four decades ago.

For the middle-income group, the “lost decade” of the 2000s has been even worse for wealth loss than for income loss.

The median income of the middle-income group fell 5%.

However, median wealth (assets minus debt) plummeted 28%, to $93,150 from $129,582.

The median wealth of upper-income Americans was essentially unchanged during this period, rising 1% to $574,788 from $569,905.

The bottom was hit the hardest. Lower-income Americans’ wealth plunged 45%, to $10,151 from $18,421.

Who Is Middle Class In America?

Who is middle class in America?

In addition to looking at a “statistical middle” derived from government data, the Pew Research Center report looked at those who self-identify as middle class, based on a national survey of 2,508 adults.

In the survey, 49% of adults describe themselves as middle class. In a similar survey in early 2008 53% said they were middle class, just as the Great Recession was beginning.

That recession, according to the National Bureau of Economic Research, began in December 2007 and ended in June 2009.

The 2012 survey finds an increase in those who self-identify as being in the lower or lower-middle class.

Thirty-two percent said they were lower or lower-middle class, up from 25% in 2008. And 17% now said they are in the upper or upper-middle class, down from 21% in 2008.

Falling Behind, Moving Ahead

When middle class Americans size up their personal economies, they see themselves as both moving ahead and falling behind. It all depends on the time frame. During the short term, their evaluations tilt negative.

During the span of the past decade, they’re mixed. And in the full arc of their lives, they remain positive—although less so now than in the past.

Most middle class Americans are still feel pinched even though The Great Recession officially ended nearly five years ago.

About six-in-ten (62%) said they had to reduce spending in the past year because money was tight. That compares with 53% who said so in 2008.

what-does-Middle-Class-01-09

The downbeat short-term perspective is not surprising in light of the heavy economic blows delivered by the Great Recession of 2007-2009 and the sluggish recovery since.

About four-in-ten, 42%, of middle class adults said their household’s financial situation is worse now than it was before the recession. Meanwhile, 32% said they are in better shape. An additional 23% said their finances are unchanged.

Of those who said they’re in worse shape, 51% said it would take at least five years to recover. A full 8% predicted they would never recover.

When asked to compare their financial situation now with 10 years ago, middle class American was more evenly divided.

Some 44% said they are more financially secure than they had been. Another 42% said less. An additional 12% said it’s about the same.

In the longer term, the outlook grew more positive.

Six-in-ten (60%) said their standard of living is better than that of their parents at the same age. Nearly a quarter, 24%, said it’s the same and just 13% said it’s worse.

These evaluations were far rosier in 2008. Then 67% said they were doing better than their parents at the same age. 

The Cost Of An American Middle Class Life

The survey also asked how much annual income a family of four would need to lead a middle class lifestyle.

The median response among those who consider themselves middle class is $70,000, meaning that half of middle class adults said it would take more than $70,000 annually and half said it would take less than that amount.

Public estimates of how much money it takes for a family of four to live a middle class lifestyle is quite close to the Pew Research Center’s analysis based on U.S. Census Bureau data. The median income for a four-person household is $68,274.

As expected from the varying cost of living across the country, the annual family income seen as necessary for a middle class lifestyle is a median of $85,000 in the East and $60,000 in the Midwest. The median middle class income is $70,000 in both the South and the West.

Similarly, the median among middle class adults living in rural areas is $55,000. Among suburban and urban dwellers, it is $75,000 and $70,000, respectively.

Please click the page numbers below to continue reading

The economic narrative the middle class tells about itself through its responses to the Pew Research survey is consistent with government economic and demographic trend data.

For the half-century following World War II, American families enjoyed rising prosperity in every decade.

Having a steady job is what it takes to be middle class in America
Having a steady job is what it takes to be middle class in America

That streak ended during the decade from 2000 to 2010, when inflation-adjusted family income fell for the middle income, as well as for all other income groups, according to U.S. Census Bureau data.

A Pew Research Center analysis of long-term census data also finds that those in the upper-income group now take in a much larger share of U.S. aggregate household income than they did four decades ago. Those in the middle take in a much lower share.

For the purpose of this analysis, the middle tier is defined as those living in households with an annual income that is 67% to 200% of the national median.

The upper tier is made up of those in households above the 200% threshold. The lower tier is made up of those below the 67% threshold.

The Pew Research analysis found that upper-income households accounted for 46% of U.S. aggregate household income in 2010, compared with 29% in 1970.

Middle-income households claimed 45% of aggregate income in 2010, compared with 62% in 1970.

Lower-income households had 9% of aggregate income in 2010 and 10% in 1970.

These shifts result from two trends: larger income gains for upper-income households than for others and a decline in the share of adults living in middle-income households.

From 1970 to 2010, median incomes rose 43% for upper-income households, 34% for middle-income households and 29% for lower-income households.

During the same four decades, the share of the adult population living in upper-income households rose to 20% from 14%. Middle-income households fell to 51% from 61%. For lower-income households, it rose to 29% from 25%.

Middle Class Wealth, Assets And Debt

The net worth of middle-income families — that is, the sum of assets minus debts — also took a hit during the past decade, according to data for 2001 to 2010 from the Federal Reserve’s Survey of Consumer Finances.

Median net worth fell 28%, to $93,150, erasing two decades of gains.

Wealth of middle-income families had been unchanged from 1983 to 1992, then grew sharply—by 43%—from 1992 to 2001, and continued to grow in the 2001-2007 period, by 18%.

Net worth of middle-income families dropped 39% in the later years of the decade as the housing market crash and Great Recession wiped out the previous advances.

winners-and-losers-Middle-Class-01-13

Only upper-income families registered strong increases in wealth in the 1983 to 2010 period.

Breaking apart the two components of net worth—assets and liabilities—the value of assets grew more than the level of debt in dollar terms from 1983 to 2001 and from 2001 to 2007 for all families and for middle-income families.

For middle-income families, though, the rate of increase in debt was larger than the rate of increase in assets during both periods.

From 2007 to 2010, mean debt level for middle-income families fell 11%, or $11,040. Unfortunately the value of their assets fell even more, by 19%, or $75,621.

One reason that upper-income families fared better than others is that they are less dependent on home equity, which since 2006 has been the main reason for declines in wealth.

Home equity accounted for at most 24% of the mean assets of upper-income families from 1983 to 2010. This compares with at least 40% of the assets of middle-income families during the same period.

Winners And Losers

Even as the share of Americans in the middle has declined, the income status has improved for some demographic groups and deteriorated for others.

This report classified groups into winners and losers by comparing changes over time in their shares in the upper- and lower-income tiers.

From 2001 to 2011, there were distinct differences by age: Adults ages 65 and older were the greatest winners, while other age groups were economic losers.

Does Hard Work Pay Off?

In addition to scaled-back judgments about how they are doing personally, Americans have a bit less faith in their long-held beliefs about the efficacy of hard work.

Two-thirds of the middle class (67%) agreed that “most people who want to get ahead can make it if they are willing to work hard,” while 29% agree “hard work and determination are no guarantee of success for most people.”

Among the general public, the shares are similar—63% say hard work pays off, while 34% say it does not necessarily lead to success.

The Pew Research Center has asked this question 10 times since 1994, when 68% of the public agreed that hard work pays off.

Belief that hard work pays off peaked in 1999 when 74% of American surveyed expressed that view.

The widowed and currently married were winners, while those who never married or who were divorced or separated were economic losers.

Age helps explain some differences by marital status.

Widowed and currently married adults tend to be older than those who never married. Adults with only a high school diploma were among the groups that lost the most ground, although college graduates also experienced a small loss.

In the longer term—1971 to 2011—older adults fared better than younger ones, married adults fared better than the unmarried. College-educated adults fared better than those with less education.

American Middle Class Looks Ahead With Muted Hope

Middle class Americans look to the economic future—their own, their children’s, and the nation’s—with a mix of apprehension and muted optimism.

About a quarter, 23% said they are very confident that they will have enough income and assets to last throughout their retirement years. An additional 43% said they are somewhat confident. However, 32% said they are not too or not at all confident.

most-hopeful-Middle-Class-01-07

As for their children’s economic future, some 43% of those in the middle class expect that their children’s standard of living will be better than their own. A quarter, 26%, think it will be worse and 21% think it will be about the same.

Five years ago, in response to the same question, the middle class had higher hopes for their offspring. More than half, 51%, said they would have a better standard of living. Another 19% said it would be worse.

As for the nation as a whole, the verdict from the middle class is likewise muted.

Only about one-in-ten (11%) said they are very optimistic about the country’s long-term economic future. Another 44% are somewhat optimistic and 41% are somewhat or very pessimistic.

Study Finds 99% Of American Workers Get Decade Of Pain, Top 1% Net All The Income Gain

Young, Underemployed And Optimistic – Coming Of Age In A Tough Economy

A 10-Year Decline In Wages For Most College Graduates

Global Gloom About The World Economy, China, India & Emerging Markets Optimistic

Working In America: Job Security Important To The Middle Class

List your business in the premium web directory for free This website is listed under Human Resources Directory