Carpe Diem

Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class

families

The chart above is based on Census Bureau data on “Money Income of Families–Percent Distribution by Income Level, in Constant (2009) Dollars” from 1967 to 2009 (Table 696) for the family income categories: a) $25,000 and under, b) $25,000 to $75,000 and c) $75,000 and over.

The chart and this post were inspired by a comment made by Ken on this CD post earlier today on middle-class incomes over time and the myth of middle-class stagnation. Ken points to Census Bureau Table 696 as evidence that the reason the middle class appears to be “disappearing” is because that income group is actually “disappearing” or moving into the upper class, and not falling into the lower class as is typically claimed.

Here’s what the family income distribution data in the chart above show:

1. In 1967, almost 62% of American families were earning between $25,000 and $75,000 in constant 2009 dollars, an income range that might accurately describe America’s “middle class.” Also in that year, fewer than one out of six (16.3%) American families had income above $75,000 (upper class), and 22% of families were earning $25,000 or less, an income category that might be described as “lower class.” In 1967, there were almost four American families earning a middle-class income ($25,000 to $75,000) for every high-income family earning above $75,000. Further, there were almost three “middle-income” families for every one “low-income family,” so the middle class American families earning between $25,000 and $75,000 clearly represented a significant share of US families.

Here’s what happened over time:

2. The share of lower-income families fell over time by 4.2 percentage points, from 22% of all US families in 1967 to only 17.8% of all US families in 2009, while the share of middle-income families decreased by 18.6 percentage points during that period, from 61.8% in 1969 to 43.2% in 2009. So where did those 22.8% of families go that disappeared from the lower income and middle income categories in the 42-year period between 1967 and 2009? They “disappeared” into the upper-income category of incomes above $75,000, which increased by 22.8 percentage points, from a 16.3% share of American families in 1967 to a 39.1% share in 2009. Whereas “middle class” families were so numerous that they outnumbered “upper class” families by a ratio of almost 4:1 in 1967, so many American “middle class” families have moved by the 2000s to the “upper class” by income, that those two groups have been almost equally represented for their shares of the total number of US families over the last decade (see the convergence of the blue and red lines in the chart above).

Bottom Line: In other words, America’s “middle class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%. On the previous CD post, Ken commented that although “Many prominent people like Paul Krugman claim that the middle class has been in decline since the 1970s, that assertion is incredibly and verifiably wrong.” And according to the percent distribution of family income data by income level (in constant dollars) in Table 696 from the Census Bureau, I think Ken is exactly right.

Comments welcome.

247 thoughts on “Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class

  1. This cuts so squarely against 10-years worth of bipartisan conventional wisdom, color me skeptical.

    I wonder to what degree of causation the rise in upper-class membership tracks with the percentage of households becoming two-earner households over time.

    As a bonus, it would be interesting to check the change in percentage of household income spent on child care, and then to re-chart the class breakdown in light of that factor

    • exactly it tracks very closely to women entering the workforce. and I’m sure the increase in revenue (income) has generally not been enough to offset the skyrocketing costs of healthcare, education and housing.

    • This cuts so squarely against 10-years worth of bipartisan conventional wisdom, color me skeptical.

      That it cuts so squarely with 10-years worth of political hackery in order to gather more power to governments bolsters the post’s claim. Quick lesson in politics: politicians lie to get you to give up more of your wealth so they can have it.

      Additionally, and just as important, household sizes have been in decline over those same decades, going from 3.5 people per house hold to 2.5 people per household. This means the gains were even more significant as the income per person per household would be even higher than in the above graph.

      Lastly, you should note, is that households with two earners have two earners because both people want to work, not because both need to. With hourly income gains the US has seen, it’s easy for anyone to live at the incredibly cheap living standards provided in the 1960′s on a single income. The reality is that many people want that extra income because there is so much more to be consumed, not because people are struggling to live comparatively awful 1960′s (to 2013) living standards.

    • and by California you means specific cities in specific areas of California, like SF or Marin County.

      But yeah, its still a lot close to upper-middle than lower middle class.

    • Then leave California. There are plenty of jobs in Texas, and by leaving, you’ll make the cost of living in CA go down (as population density drops, housing cost will decline). So you’re helping yourself and others. Just don’t vote for California-style public policy in Texas, or you’ll bring the problems with you.

      • Perhaps we are too dominated by statistic, particularly dollar orineted statistics.
        First, middle class, by definition, is the class in the middle, and only the boundaries are left to be set.
        Second, we could could look at what being in the middle entails, not in terms of income, but in standard of living.
        Third, we might even consider factoring in expectations and how they affect the mix.
        Maybe, just maybe, we might try expanding the list of variables; but of course that’s not realistic in presenting to those who prefer simple, short answers. Besides, who would have the patience to stay with other these days?
        We are spoiled; we expect to much. And we try to associate that with wealth and income. Life is – or should be – a bit broader than that.

  2. This is pure demographics. People earn more as they get older. We have this entire generation of Boomers reaching peak earning years. Oh nos! the Middle Class is shrinking! Then they start to retire. Oh Noes! The average median income is falling! IN a society where birth rates are stable and everyone gets the SAME income and the SAME raises still ends up with a huge amount of “income inequality” between the Old and the Young. And still the Liberals persist in using these lies and distortions to promote their agenda.
    The young, who can’t find jobs and were encouraged by the old to take on 5 digits in debt, and now whom can’t get a decent job till they are in their thirties, loosing a decade of income MUST pay for the health care and SSI of a generation that had more economic prosperity and opportunity than any other group in human history, otherwise their retirements might be disrupted. The same young who will never have a retirement or SSI themselves. Betrayed by their substandard Public School educations, the youth of America fell for it hook line and sinker. No, this does not end well. But it will end.

    • WAIT! if you dare disagree with the conventional wisdom here in CD.. you automatically become an economically illiterate idiot…

      be careful there…guy.. the piranhas can be ruthless!

      welcome to the Star wars Bar!

      ;-)

      • even if ever single thing she says it true, which it isn’t………….she back up nothing outside of “certainties” and “similar” measures.

        once again LarryG says nothing while implying everything.

    • “First, $75,000 household income is hardly “upper class.” You can’t even buy a house on that income in many areas.”

      That’s a lie, period, even though it’s TECHNICALLY TRUE…….many vs % of areas.

      And that was the first paragraph. You’re way out of your league here. Better take some more “nonsense selling” courses.

      then it gets worse in the next paragraph…..so smart yet no commitment with data or anything else other than “i’m certain”…….what a joke. lol ..here goes…

      “Second, those “constant dollars” are deflated by CPI or some similar measure, which understate inflation due to flat screens, iPads, and computers getting cheaper while the cost of necessities (housing, food, and energy) increases. I am certain that $75,000 “constant dollars” in 1967 bought a lot more house, food, and gasoline than it buys today.”

      “or some similar measure”?…..we call this an escape hatch for morons. I’ll give IT one thing, in that IT doesn’t believe in that hedonic boskin nonsense. But it’s probably only because it doesn’t fit the current argument. If they ran the economy, instantly these things would more relevance….

      i’m not sure what the hell this is suppose to mean in a world where all people should be in the labor market (a job is a right and obligation). Even in a the purist of egalitarian systems wages must in some way be divided out.

      but have no fear, because ………….SHE’S “CERTAIN” OF THIS THINGS………a bad joke placed on humanity is her blog.

      Her “certainty” is “TRUTH”! What a poor quality narcissist she is. lol.

  3. Hmm I would be interested to see what would happen if the income bracket for “middle” class was changed to something more accurate, say 35k. I’m sure we would see some downward mobility.

    FYI 25k is not middle class

  4. Are these figures inflation adjusted? 75K in 1967 is not the same as 75K today. Have I completely missed something here? if inflation is not considered this comparison makes no sense? You probably could buy a whole house in 1967 with 75K!!!!

      • But they are not constant. You have a splice of two data sets produced by two different methodologies. The post-Boskin methodology produces a lower inflation rate than the methodology it replaced. Apply the same method to the entire data set and the numbers look a lot differently.

    • The figures are adjusted but use at least two different methodologies. Had either methodology been applied constantly to the entire data set the numbers would look very differently. Fortunately for people who prefer narratives to fact economists are not scientists and do not care much for consistency.

      • re: ” economists are not scientists and do not care much for consistency.”

        some economists do. certainly not AEI “scholars” though..

        • You are right; some do care about logic and consistency. But these are on the periphery and are not to be found in the circles that promote the statism that the left, or its opponents at AEI support.

  5. Do note that *all* the increase is 1970 to ~1998. The 2000s were a complete flat line for the middle class. That’s ~14 years of no social mobility – keeping up with inflation yes, but improving wealth not really. I think that fits the usual narrative. Middle class did well until the last decade-plus and then got squat. That’s an entire decade of wealth creation mostly to the ‘upper-class’ – dare I say a ‘lost decade’?

  6. Perhaps this result is driven by the deflator: per capita income has grown by inflation and productivity, but is deflated by only inflation.

    This would produce an artefact of growth for middle income stronger than captal income for upper income sector.

    • ok, this is weird, not saying you’re wrong, but not sure precisely about what you’re saying.

      which outstrips which? inflation or productivity?

      “This would produce an artefact of growth for middle income stronger than captal income for upper income sector.”

      that can be taken multiple ways. You did say “capital income” vs “per capita income”………”for upper income sectors”?….huh?………

    • capital and per capita income are two completely different things….unless we’re saying people shouldn’t or cannot save money?

  7. I believe this debate is misconceived. Virtually all resources geared to production are used for the purpose of creating goods & services for the poor/middle-classes. The consumption of the rich is virtually irrelevant. If the rich want to make money, they must sell in bulk (to keep it simple), and this means selling to (and producing for) the classes far beneath them. The children of the rich might eat Cap’n Crunch, but they don’t eat much of it compared to the masses. So, if real wages are directly related to the amount of goods and services one can purchase, and nearly all production is geared for the masses, then how can the poor/middle-class fall behind or, conversely, the rich gain? Do the rich have warehouses full of goods hidden away from the masses, causing average real wages to fall? This is plainly not true. So, the problem must lie with a (relative) decline in production. But surely a decline in production does not benefit the rich in any significant way. They would not choose to restrict production in the face of world-wide competition. Perhaps the problem lies elsewhere, i.e. in whatever might impede increased production or cause its relative decline. I think the problem is capital consumption by the government.

    • Both are true.

      Dodging a constant $ definition of “middle class”, the CBO data divides everyone into quintiles, and then compares differences in growth across those quintiles. That hides the fact that definition of the quintiles changes over time. The boundary between the lowest quintile and next lowest quintile is going up over time, in real, inflation adjusted dollars.

      This presentation of the census data here doesn’t show that the amount it takes to be in the top 1% of income has been going way up over time, as it doesn’t presuppose that to be a negative. Instead, it shows that more of the income group from 25-75k has been moving up then down.

      • this is a good article exploring the vagaries of the definition:

        http://en.wikipedia.org/wiki/American_middle_class

        for instance:

        ” Income varies considerably from near the national median to well in excess of $100,000.[2][4] Household income figures, however, do not always reflect class status and standard of living, as they are largely influenced by the number of income earners and fail to recognize household size. It is therefore possible for a large, dual-earner, lower middle class household to out-earn a small, one-earner, upper middle class household’

      • Between 1967 and 2009 GDP per capita (in constant inflation adjusted dollars) approximately doubled in the U.S. Access to limited resources (such as prestige universities and upscale neighborhoods) is determined by how much one can pay relative to one’s contemporaries. By choosing a specific income range, even if adjusted for inflation, this chart is ignoring that the country as a whole is getting richer.

        Of course most income groups have “moved up”. The whole country is twice as rich as it was in 1967.

        What is most disturbing, is the line for people making <$25K. Those poor folks haven't benefited at all from the doubling of GDP per capita in the last 40 years.

  8. The idea of upward mobility in America is a powerful and deeply engrained part of the American Dream. Never was that idea more potent
    or more seductive than in mid-century America, when the real Mad men of Madison Ave. cleverly created ad campaigns calculated to sell the American dream to the world and to ourselves. For a look at one such ad campaign that both reinforced and reflected the fairy tale suburban life offering a template to the newly minted middle class please visit ” A Blueprint for the Middle Class.
    http://envisioningtheamericandream.com/2012/09/24/a-blueprint-for-the-middle-class/

    • the end of WWII – with GI benefits for schooling, health care, and home buying – also played a significant role in both white and black people thinking that with those benefits those could bootstrap themselves up into the middle class.

      Levittown, New York was an example.

      • the end of WWII – with GI benefits for schooling, health care, and home buying – also played a significant role in both white and black people thinking that with those benefits those could bootstrap themselves up into the middle class.

        Levittown, New York was an example.

        As usual, you learned the wrong lesson Larry. People of your ilk were predicting the return to depression when government spending fell off a cliff. But when the government got out of the way the private sector stepped in and was able to use the scarce resources that had previously been wasted by the public sector to meet pent up demand by consumers. That was the reason why the economy flourished, not any government program.

        • Vangel – I was not espousing a govt policy that ended the drepression, I was espousing a govt policy that provided health care to people who had not had it previously. the ability to go to college, for many the first in their family and the ability to buy a house …

          there were investments in people.. as a reward for serving their country…..

          The GI bill and their impact and effect on people is well documented – not an opinion.

        • the funny thing is .. that people who oppose entitlements in general or okay with entitlements – provided they are “rewards” for serving the country… right?

          so if you join the military – you can get free health care for you and your family – not as compensation but as a entitlement.

          Otherwise the military could just pay soldiers a wage and let the soldiers use that wage to buy health insurance, health care, college, a house, etc….

          so what doesn’t the military just pay wages and let the folks who earn those wages get those other things?

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