Is the middle class shrinking?

by on January 17, 2012 at 5:05 pm in Data Source, Economics | Permalink

From the excellent Scott Winship:

Krueger’s claim of a shrinking middle class relies on the same peculiar definition. Specifically, “middle class” is defined as having a household income at least half of median income but no more than 1.5 times the median. I re-ran the numbers using the same definition and data source as Krueger and found that the entire reason the middle class has “shrunk” is that more households today have incomes that put them above middle class. That’s right, the share of households with income that puts them in the middle class or higher was 76 percent in 1970 and 75 percent in 2010—two figures that are statistically indistinguishable. For that matter, I am not discovering fire here; Third Way made the same point in early 2007 (page 7). A shrinking middle class is only a problem if it reflects fewer people reaching the middle class.

The post is excellent throughout and it contains many more points of interest.

TallDave January 17, 2012 at 5:17 pm

The 1% are stealing the middle class!

TallDave January 17, 2012 at 5:31 pm

More seriously, in addition to Winship’s many excellent points about methodology, “economic mobility” is another one of those issues like “austerity” and “inequality” where the terms used to define the debate are connotatively problematic. “Mobility” implies a measure of the ability to move across the income distribution, but what they’re actually measuring is the tendency to do so. That fails to take into account choice — a large proportion of people are not particularly interested in doing better than their parents, esp. if it means working/studying harder (and I don’t think we should assume their choice is irrational!).

Floccina January 17, 2012 at 5:39 pm

Yes, I like to use my cousin as an example, he decided to quit his close the median paying job for a low paying job that he liked more.

Miley Cyrax January 17, 2012 at 6:05 pm

Indeed. Plus it’s not upward mobility that’s indicative of an improving society, but rather downward mobility, as pointed out by Gregory Clark. This seems to be a tough idea for some people to swallow.

Secondly, as I’ve stated on this blog before, assortative mating in a meritocracy will give the appearance of little socioeconomic “mobility,” as Razib Khan has discussed on GNXP and Cochran and Harpending have on WestHunter.

Gunnar Tveiten January 18, 2012 at 4:21 am

Why would Americans be less ambitious today than a generation ago ? Why would Americans be less ambitious than Scandinavians ? Why would changing-positions on the social-ladder become more common if everyone worked harder ? As far as I can see, that’d only be the case if the poor worked harder. (but the rich did not)

If there was opportunity, I’d actually expect the opposite. If I earn $75K/year, I might not care to work harder to get up to $100K, because either is fine for the life I want. But if I live on $25K/year, I’d most definitely want to climb – assuming there was opportunity to do so.

It’s true that we measure tendency, and conclude that if people actually do it less, it’s (atleast partially) because there’s less of an opportunity, but this conclusion seems sound to me.

So Much For Subtlety January 18, 2012 at 5:33 am

Well one reason they may be less ambitious is that they can. Two generations ago there was little to no sex without marriage. There was no marriage without a home. There was no home without a job. Men had good reason to work hard. Especially once they had a few children. Now, young men can get more, and more varied sex, with a far larger number of women than their grandparents could have dreamed of. Even more so if you include on-line porn in that definition of sex. They don’t have to pay for it directly or indirectly. It is abundant and free.

So why work hard? Seriously – why bother? Why knock yourself out in graduate school when you can tend bar and meet far more women?

Nor is it just sex – everything is cheaper. Everything is more readily available. What does a bar-tending young man with an X-Box need to work hard for?

Gunnar Tveiten January 18, 2012 at 5:47 am

Why is this -more- true in USA than in (say) Scandinavia ? The opposite would seem more plausible. (life as poor is significantly more comfortable here, and access to sex for men with little ambition and low earnings would seem to be superior too)

Why does -everyone- (rich or poor) working less hard translate to decreased mobility anyway?

So Much For Subtlety January 18, 2012 at 8:15 pm

Not sure. Higher taxes may be one reason. A poor American man can live quite comfortably, while I am not sure that is entirely true for a poor Swede. Cultural values may be stronger in Northern Europe. The Puritan ethic may be stronger too.

I know a law student who graduated in the top ten students in her year. She is no longer working as a lawyer. Nor are *most* of the other nine. Two have become chefs. Both male. There is a cultural change going on but I admit I am not quite sure what it is.

TallDave January 18, 2012 at 10:55 am

Not to mention that before 1950, you generally had to work to eat.

Dick Hertz January 18, 2012 at 5:35 pm

False first conditions lead to false conclusions.

JonF January 18, 2012 at 5:40 pm

Re: Two generations ago there was little to no sex without marriage.

That is by far the most risible thing ever posted in comments on this blog.

So Much For Subtlety January 18, 2012 at 8:12 pm

Oh come on. I almost never post here and even I have posted more risible things than that.

Besides, it is pretty much true.

Tummler January 18, 2012 at 2:46 pm

Can you expand upon your point that masturbation leads to mediocrity?

KLO January 17, 2012 at 5:39 pm

The real problem is that the median is not what it used to be. Scott has consistently trumpeted highly misleading figures in his recent articles on income mobility. All of the income growth that supports his position is the result of higher labor force participation rates. Now that the labor force participation rate is plummeting, the lower hourly wages of workers compared to one and two generations ago will begin to translate in lower household incomes. The trend is unmistakable. Nevertheless, I cannot wait to hear Scott trumpet how, when you adjust for household size and the distance of the moon from the earth, people really are better off than they used to be.

Dick Hertz January 18, 2012 at 5:36 pm

Winner right here.

J. January 19, 2012 at 7:49 am

Think about distribution. The more it is skewed to right (more ultra rich) the lower will be the median in relative terms. Which reflects the fact that it is easier to reach the median as average is up (due ultra rich). Then it is kind of mathematical fact that more people are over the median.

Tomas January 17, 2012 at 5:43 pm

“The middle class” is a euphemism for stable nuclear families capable of reproducing themselves from generation to generation.

No one seems to notice that the modern critique of Ricardo’s Iron Law of Wages ignores the ground truth of the so-called “demographic transition” is nothing more than replacement of the earlier developing groups by the later developing groups. This is because — in the context of the open borders/global labor arbitrage theocracy combined with birth control technology — the definition of “subsistence wages” no longer includes the high cost of child rearing in more developed nations. The demographic collapse of earlier developing groups is not having the upward pressure on wages among those groups that modern economists predict.

Modern economic theory is genocide. And yes, I do mean deliberate. This is due to high IQ niche invasion by groups with their historic animus toward native intelligentsia.

Tomas January 17, 2012 at 5:44 pm

Ricardo invoked the distinction between “natural price” and “market price” of labor primarily to argue that a continually expanding economy could continually drive the market demand for labor high enough that the market price would sustainably exceed the natural price. Moreover he invokes decadence among laborers as driving the perceived subsistence price higher and higher.

This demoralization of labor continues today in the form of comments that today’s middle class lives like the kings of old. The reality is that men must compete for reproduction among a mating market driven by fertile women, and that in societies that place value on women, mating market demands by fertile women (primarily childless fertile women) is the foundation of the iron law of wages in the modern society. Add females to the labor market with demands for equal wages, as well as birth control, and you have an explosive brew.

There is a positive correlation between a man’s wealth and his fertility even in developed countries — it’s just that the threshold where that positive correlation starts is far above the middle class level it was during the 1950′s — that decade hated by Hollywood almost as much as the Nazis the fathers of those middle class families fought in WW II.

Jamie_NYC January 17, 2012 at 6:16 pm

Roissy, is that you? : -)
Yes, as Chris Rock said: if it were’s for women, we’d be living out of a cardboard boxes.

Claudia January 17, 2012 at 7:21 pm

Roissy was by far the worst thing I Googled off this site.. One upside is it makes the woman grumping that’s occasionally here seem harmless. Sure women with careers changes social dynamics (deal with it) but libertarians (and the individualists commenting here) should be cool with individual empowerment. Jamie’s quote says it well. Made me laugh.

Miley Cyrax January 17, 2012 at 7:49 pm

I believe Chris Rock’s language was slightly more vivid concerning the notion that men would live in cardboard boxes if a steady stream of female sexual access were guaranteed. Unfortunately, I couldn’t find it from a quick YouTube search.

No Roissy needed. Even PC Slate Magazine has acknowledged the existence of a sexual marketplace, and that when sex is easy, men are lazy: http://www.slate.com/articles/double_x/doublex/2011/02/sex_is_cheap.html

Of course, a quick scan through the comments section of that article reveals the usual shrieking and cries of empty buzzwords like “commoditization” and “sexism” as they see their fanciful Disney-ian and/or egalitarian notions of love get bulldozed by supply and demand and evolutionary biology 101. To be fair, a good number of comments at least show a hint of proper understanding.

Claudia January 17, 2012 at 9:07 pm

Miley, So disappointed that you couldn’t find that video… Fine sexual marketplace. I am an economist…I understand markets. I wrote a paper in college on why prostitution should be legalized. I like Disney movies but I am not trying to make you star in one. But the idea that the “demoralization of labor” is do to “fertile women” with careers is just silly. It’s like some weird Malthusian prophecy that we’ll all starve with population growth. I suspect technology (if not those *pesky* working women) will help us save the day again. I find a way to work full time and raise two young kids. My BB and laptop make sure that I can fit my work in the day, still be a good mom, and help get meals on the table. Sure it is not perfect and I respect other people’s life choices, but I and my female friends who work are NOT destroying the economy or men’s lives. Tomas’ argument: “Add females to the labor market with demands for equal wages, as well as birth control, and you have an explosive brew” is just as much (if not more crap) than the “sexism” and “commodification” comments you found on Slate. And no you don’t need Roissy, but Jamie’s comment reminded me how full of silliness that blog is. It’s fine for it to be out there, but I don’t need to wander in to it.

Miley Cyrax January 17, 2012 at 9:51 pm

Claudia, I was addressing only the Roissy and Chris Rock allusions, not anything Tomas wrote. In fact, I didn’t even read it until now.

I don’t think anyone would claim that women enter the workforce to destroy the economy or men’s lives; that sound’s ridiculous prima facie. The job market is not a zero sum game between men and women.

However, off the top of my head, two substantial side effects come from women entering the workforce en masse and the social climate surrounding it:
1. Women tend to want to date higher socioeconomic status men than themselves, even if they themselves are relatively high status, so more women in the workforce means a reduced pool of acceptable men for them, which is unfavorable for both men and women.
2. Women being misled by the current (“girl, you can have it all”) Zeitgeist to believe that their fertility window is longer than it is, and doggedly pursue their careers as a result without second consideration to fertility until it’s too late.

Claudia January 17, 2012 at 10:16 pm

Miley, now I finally get all your assortarive mating comments. I think women are more open minded in choosing a spouse than you assert. Even if working women had a prefeence for working men, most men work or have some attachment to labor force in prime dating years (this does not hold in all subpopulations, but I think you are making a general argument). Women with a paycheck may help ease up the pressure to find men with big paychecks. What seems to get tricky is when women make more money and put a high weight on their career, but that seems to be more a hang up of men rather than women. Still I grant you it causes some new issues. On your second point, I have to agree that the “you can have it all” mentality can be a disappointment. Technology continues to expand childbearing years, but it would be nice not to have one’s big career push and baby pushing at the same time. But I think most women catch on quickly…how quickly men give up their boyish views of the world? I think I have written more than enough on this topic.

Miley Cyrax January 17, 2012 at 10:40 pm

Claudia, assortative mating is not just women screening for acceptable men, but is also mediated by literal proximity. As I’ve written on Hanson’s Eye Candy thread on a somewhat different topic, “most men don’t have the ability to be cultivating new prospects out at bars and clubs with consistency,” and thus men tend to make the most of what what they can at work and at school, or the social circles they derive from those settings. Since schools and workplaces are de facto sorters for intelligence and socioeconomic status, they increase assortative mating now that more women participate in these settings.

TallDave January 17, 2012 at 11:09 pm

MIley — this graph might interest you (set start to 1948). I don’t know that it argues one way or the other, but it’s interesting to see the effect of the flow of women into the overall workforce.

Claudia January 18, 2012 at 11:07 am

Miley, I was simply responding to your comment that women wanting to date men of higher socioeconomic status. Clearly it takes two to tango. Yeah, I read the “Eye Candy” piece a few days ago and found it pretty lame. (Must be hard for guys to get work done when they’re so easily distracted.) I agree that there is positive assortative mating (on earnings potential or intelligence or other preferences), but I doubt it’s been increasing as much as you argue or that it matter for so much stuff. Matches used to be made in high school/college and now they happen in the workplace, so?

CMS January 18, 2012 at 1:41 am

It was actually Dave Chappelle.

http://www.youtube.com/watch?v=5ZRflz-93JA

JonF January 18, 2012 at 5:44 pm

Re: when sex is easy, men are lazy

Maybe, but sex is easy only for a small fraction of the population: those who are young, attractive and/or rich. Everyone else has a hard slog in the mating market. The lucky ones (a large fraction) have paired off while still young. Otherwise they’re sleeping alone– unless they can afford o pay for it and don’t mind the illegality (assuming they do not live in Nevada). No one can make himself younger; there are limits to what one can do for one’s looks; so getting richer is the best straetgy for the unfavored outsiders to succeed in the mating market. That still means a good job.

Miley Cyrax January 18, 2012 at 11:02 pm

Jon F,

Easy is relative. It doesn’t mean it’s “easy,” period. The easier sex is, the lazier men will be. I could have been clearer, but there you go.

And on a side note, youth, looks, and wealth are not prerequisites for attaining ample female sexual access, although it certainly doesn’t hurt.

JonF January 19, 2012 at 5:49 pm

Miley,

I think you underestimate the ease with which men before the 20th century could obtain sex– if sex was all they wanted. One word: prostitution. Which was generally legal and common and somewhat less stigmatized than today (hence the “hooker with a heart of gold” stereotype). Even society’s greatest moralists, like Thomas Aquinas, argued that brothels must be tolerated to prevent an epidemic of rape and general licentitiousness.
Of course if men wanted more than just sex– as in wives– then they generally needed marriage unless they were rich enough to “keep” a woman. But that is still true today.

Careless January 22, 2012 at 1:54 pm

As scott Adams wrote, “I fear the holodeck will be mankind’s Last invention

DL January 17, 2012 at 5:47 pm

Yet large segments of the population, including the college educated, cannot afford child care, housing, education, or health care. Perhaps the definition of middle class needs to be changed to reflect the increased cost associated with these goods and services.

Bernard Guerrero January 17, 2012 at 6:13 pm

College educated as _what_?

brad January 17, 2012 at 7:52 pm

Exactly, it’s not about the ratio of income to the average income, its the fact that housing, education, health care etc are all a higher proportion of income. It’s a question of how many people can afford the things middle class people used to have?

David Wright January 17, 2012 at 8:59 pm

My your own metrics, a median earner is does at least as well today as in the past. Previous median households had much smaller houses; there were no family rooms or dens and the kids shared a bedroom. Previous median households had much less money spent on their kids primary and secondary educations; class sizes were larger, there was little to no busing, and there were little to no services for handicapped kids. They did get a larger subsidy on college education, but far fewer of them got access to that; the total size of state subsidies to public universities has stayed about the same. The health care they got was asprin, antibiotics, x-rays, and casts when they broke bones, all of which cost about the same now as then. There were no statins, MRIs, chemo and radiation therapies to buy, so if they got cancer or had a heart attack they usually died quickly.

In short, the contemporary median household indeed may feel more squeezed, but that it because there are many more things it feels it should be able to afford. I challenge you to find anyone who, after careful study of the bundles of goods and services that each could buy, would prefer the bundle available to a median earner in 1970 over the bundle available to a median earner today.

Jay Jeffers January 17, 2012 at 10:11 pm

David Wright,

I’m half with you. First I think DL moved the conversation forward by insisting that we should be focusing on how accessible a few staples are to middle income people, and brad crystallized the point by pointing out that we’re not just talking about ratio of income to the average income (if we were, seems like we could just say “middle income” rather than middle “class” which seems to carry more normative connotation).

Second, I think you hit the nail on the head when it comes to health care (a guest on Econ Talk pointed out that leeches shouldn’t be too hard to come by).

But moving on, do you not have the feeling at all that a guy could graduate high school, learn a trade like welding or become a mechanic, marry a nice gal, have a couple/few kids and pay the doc, send them to decent and safe schools, put a roof over his family’s head w/o going into insane debt, have job security, and retire in relative financial peace? All that stuff seems a lot more precarious now. Granted, huge social changes have thrown a wrench (no pun intended) into this life vision, but the idea that the govm’t could do more to approximate the comfort of those days doesn’t sound too far off base to me (also I’m not sure if the infamous capitalist neoliberalism is the main culprit in the loss of the old way of life, though it’s probably multi-causal). In mentioning the role of government, I’m talking here of some sort of single payer catastrophic health care, generous EITC, stuff like that. I mean, in dire situations, people will do whatever they have to do to get the best care for their loved ones. If they can’t afford to, they’ll go bankrupt to try to pay for something that might not even work. When considering such cases, the days when certain medical options were completely off the table don’t seem all that bad anymore. Now, comparing the health care purchased in the 1950s by middle class people compared to the health care purchased by middle class people now is apples to oranges. But I do think that certain ways of life are more precarious now, and having central heat and air and kids with neat gadgets doesn’t make up for it (not saying you deny that, just trying to make a point).

derek January 17, 2012 at 10:52 pm

I think you are idealizing the past.

David Wright January 17, 2012 at 11:19 pm

Thanks for your considered and collegial reply.

I suspect you are right that things have actually got worse on at least some metrics for people with only a high-school education. But of couse there are fewer of them and their effect on the median has fallen proportionately.

Job security has fallen at all income levels, but that’s probably tied pretty closely to industrial nimbleness and associated productivity gains, so its not at all clear that the net effect isn’t positive, especially in more normal times when it’s not so hard to find another job.

A system of universal, taxpayer-financed minimal medical care would, I think, be a good deal for nearly everyone, rich as well as poor. But in the long run it’s very hard to preserve that minimality, and minimality is essential to keep vast sums of public money from flowing into last-ditch treatments with little effect on outcomes. In the US, regulatory changes consistently require that insurance cover more stuff. Britain was unable to maintain the NHS cap on how much it would pay per year of life extended in the face of news of exciting and expensive new cancer treatment options coming out of the US. Over the last few years health care spending has been rising faster in several European social democracies than in the US, albeit from lower starting points. As you say “people will do whatever they have to do to get the best care for their loved ones” and that includes lobbying politicians as well as paying their own money.

Jay Jeffers January 17, 2012 at 11:50 pm

derek,

I think you are wrong to say I am idealizing the past. How’s that for terse?

OK, I admit it. I can’t stop there. I have to point out that I find it ironic that my post, of all posts, would be the one called out for idealizing the past. I mean hell, I even pointed out that huge social changes have likely contributed to the disappearance of certain social arrangements, and I didn’t say one way or another whether this was good or bad on the whole.

We may disagree with whether the picture I paint existed at all, in which case our understanding is probably too divergent to understand each other. But in order to talk about whether I’m idealizing the past *overall* we would have to talk about the whole picture. Tyler Cowen’s entry is about is a slice of life (economic arrangements) and what I’ve done is to take a slice of the slice and say that I believe something really has been lost. I move from there to saying there is something government can do to make the loss more bearable, or to approximate the good from the slice of the slice that once existed. It’s quite a moderate move, actually.

Cliff January 18, 2012 at 12:23 am

Welders and mechanics are paid quite well. I see no difficulty for such a man to do all the things you mention. Both professions pay many people six figure incomes.

The Original D January 18, 2012 at 10:46 am

“Things” are cheaper relative to income, but services are not. We can’t offshore health and education. The closest we can get is to move more to self-service or low-quality service: gasoline and air travel come to mind.

Finch January 18, 2012 at 1:09 pm

> The health care they got was asprin, antibiotics, x-rays, and casts when they broke bones

We should have single payer healthcare for this, and I’d add vaccines, and that’s it. Drop Medicare and Medicaid. Most people could reasonably drop private insurance.

You’d get 90% of the benefit of modern medicine at a tiny fraction of the cost…

mark January 18, 2012 at 9:57 am

It’s also a question of how many things the middle class today has the upper class years ago didn’t have. Would you rather be middle class today or limited – in medical treatments, information access, travel means, entertainment options – to what the upper class had 50 years ago?

Marian Kechlibar January 18, 2012 at 4:27 am

“college educated” says nothing about your usefulness on the job market.

With college degree in advanced gender studies and psychosocial ecology, the student will end flipping burgers (which is still better for the society than, say, creation of a new federal bureaucracy of Psychosocial Ecology Agency, which would actually give such people “real” jobs and power over their peers).

As for housing, there is no country in the modern world where everyone can afford housing, but the USA has, as far as I know, very high proportion of homeowners. So where precisely is the problem?

ChrisD January 17, 2012 at 5:54 pm

Problem is that it often takes $50-100K of school loans to get there today.

KLO January 17, 2012 at 6:00 pm

And two full-time workers per household.

Michael Carroll January 17, 2012 at 6:54 pm

Yeah, I think it would be very interesting to see the share of households “in the middle class” in 1975 compared to 2010 as a function of hours worked.

Come to think of it, this is actually a pretty easy transformation and I may do this later in the week.

JWatts January 17, 2012 at 6:24 pm

No, it doesn’t. Students often take out $50-100K in loans, but that doesn’t mean it requires that kind of money. That’s the equivalent of saying a car cost $30K. While there are plenty of cars costing that much or more, there are also plenty of choices below that price range.

And for the record, the average student loan debt in the US is around $25K. Very few students graduate with $100K in student loans.

ChrisD January 18, 2012 at 2:43 am

That’s true, but I was thinking about people who go back to school later and get masters or MBAs. It happens much more frequently now. That is still more money that people have to spend to get to the same station in life.

Skip Intro January 17, 2012 at 6:34 pm

In-state tuition at my university is just over $8000 / year.

Choosing to borrow 6 figures for a degree might be a problem, but nobody HAS to do it.

Michael January 17, 2012 at 6:46 pm

Out of curiosity, what would things look like if one used net worth instead of income? Something like total wealth minus total debt.

As a random example, my household is making about $50k right now while our good friends make about $90k, but my household is debt free, whereas our friends have about $400 k in student loan debt between the two of them. On a pure income level, they rank much higher than we do. We’re “middle class” per Krueger but our friends are higher than “middle class.” Still, I wouldn’t change financial positions with them under any circumstances.

JWatts January 17, 2012 at 7:17 pm

“As a random example, my household is making about $50k right now while our good friends make about $90k, but my household is debt free, whereas our friends have about $400 k in student loan debt between the two of them.”

They have $400K in student loan debt for a combined $90K in income? Unless they are both right out of medical school, I just can’t imagine how that would happen. And it’s foolish even then. It’s completely ridiculous to run up anywhere near that kind of student loan debt. There are any number of not to implausible scenarios that could keep you from ever being able to get a job paying high enough to justify that debt, but the debt does not go away. That’s like starting off Life at the Routlette table and placing all your Future earnings on Black.

Gunnar Tveiten January 18, 2012 at 4:38 am

Your friends make $40K more a year – while paying on the order of $16K in interest on their student-loans. That leaves them ahead by $24K/year at which rate it’ll take them 17 years to pay back the student-loans, (yes they’ll pay less interest as the loan gets smaller, but this is back-of-the-envelope) That’s not profitable, especially not when you consider the *time* spent in education that you (presumably) spent working. But it’s also a very high student-loan for a very-bad salary. What kinda job requires a $200K education, yet pays only $45K/year ?

That’s not a “random example”, that’s an /extreme/ example.

EB Hansen January 18, 2012 at 8:56 am

They could be lawyers, its a bi-modal market and entry level salaries can be much lower than 45k. If they met in law school and neither of them were able to get into the upper half of the market.

NAME REDACTED January 17, 2012 at 6:48 pm

You know what gets me annoyed? I know this is off topic…
People talking about mean salary. Its freaking Pareto distributed with alpha>1 which means there is no mean or variance.

NAME REDACTED January 17, 2012 at 6:49 pm

bah ignore my comment I typoed the ><

David Wright January 17, 2012 at 9:07 pm

As long as there are a finite number of people and no one has an infinite income, both the mean and variance exist and are finite.

Bill January 17, 2012 at 9:14 pm

I am surprised that the economists in this post have not spotted the issue of when you use a median as a measure.

Here’s a clue: If the gini coefficient of income inequality has changed, that is, the rich have gotten richer, and the poor have gotten poorer, what would that say about the middle.

Bill January 17, 2012 at 9:28 pm

In case you are interested, google united states gini coefficient and select the wiki article which shows the change in the gini over time. Do it before 12 midnight.

Bill January 17, 2012 at 10:05 pm

Anyone wanna bet on the change in the gini. You have been told by those you trust that the median hasn’t changed all that much. Wanna bet. Ask yourself why do economists use the gini and not the median.

TallDave January 17, 2012 at 11:18 pm

Once again, I don’t think you read the article.

Bill January 18, 2012 at 8:39 am

Once again a Yancey mimic. The data is there, the post did not discuss gini, and don’t become a Yancey parrot because you can do better.

Cliff January 18, 2012 at 12:25 am

I have had trouble finding the chart or the blog post where I saw this, but either income or wealth gini on an individual basis has not budged in about 40 years.

Plamus January 18, 2012 at 2:24 am
Bill January 18, 2012 at 8:37 am

TallDave, You are the one who has trouble reading the post: Show me where in the post or in the article there is a discussion of the gini coefficient or its change in the US. An attempt at a Yancey mimic.

Cliff, Just google the terms and pick out the Wiki link. The graphic of gini changes for western and eastern countries is quite instructive. From my eyeballs, it looks like China and the US are the countries with the fastest growing gini changes. I don’t think you can get wiki today, but I will post it. Here is one with the US over time: http://en.wikipedia.org/wiki/Gini_coefficient#US_income_Gini_indices_over_time

TallDave January 18, 2012 at 11:01 am

Bill, if you’d read the article, you would know an increase in the Gini coefficient does not necessarily mean the poor are getting poorer. It can also just mean the top of the income distribution has spread out — which they show is what actually happened.

(I wasn’t trying to imitate Yancey, but I appreciate the compliment.)

Willitts January 17, 2012 at 11:36 pm

No, the middle class has gotten richer.

TallDave January 17, 2012 at 11:44 pm

Yes, people seem very confused about what a spreading out of the top end of the income actually means. That’s why we need to stop using loaded words like “inequality” that not only imply injustice but tend to misinform.

The link is really very fascinating, the proportion of prime-age households earning >100K actually doubled from 1979 to 2005. That is shockingly contraductory to the usual “inequality”-driven narrrative which says (incorrectly) that the poor are getting poorer.

Ricardo January 18, 2012 at 8:23 am

What the “Third Way” article fails to mention — except in a confusing aside — is that this increase is due almost entirely to the increasing income of married women. Male full-time income has literally stagnated in the middle class: Jared Bernstein using Census CPS figures shows that the average married man real income in the 40-60% household income bracket declined from 1977 to 2007 even as hours worked increased. By contrast, women’s wages have increased over this period and women are also working longer hours than they did in the 1970s.

I say their aside is confusing because they claim real median income would have risen 9% if married women kept their hours worked constant. That works out to a growth rate of 0.3% per year and even this paltry level of growth is due entirely to the median married woman’s income increasing by a bit more than 0.3% per year. Married men’s wages at or around the 50th percentile have stagnated completely.

TallDave January 18, 2012 at 11:09 am

Yes, but the question you’re not asking is the really important one: why did women enter the workforce? And the answer is, productivity gains.

At the start of the 20th century, it was very difficult for married women to work because the vast array of domestic labor-saving devices we take for granted were not yet available, and even if they entered the workforce they wouldn’t be productive enough for the difference to matter. Over time, the time required to perform domestic chores has decreased while the value of work has increased. That translates into real gains in living standards.

Ricardo January 19, 2012 at 4:16 am

What productivity gains in the 1980s and 1990s would have led to more women in the labor force? I grew up in a middle class family in the 1980s and we had a dishwasher, a washer and dryer, a vacuum cleaner, a microwave and all the rest. In other words, exactly the same appliances of maybe only slightly inferior quality to those available today. Tyler Cowen covers this point in TGS. My mother had work experience but stayed at home because she didn’t want to put us in day care. Middle class women today don’t necessarily have the luxury of making such a choice.

My grandmother, on the other hand, had to keep her marriage a secret during the 1930s because it was known in her particular place of work (a department store, if I recall correctly) that once a female employee got married, she was let go. So there wasn’t any choice to make back then — if you got married, you simply did not work. It wasn’t done.

The bottom line, though, is that middle class men’s wages have stagnated for the past 3 decades and women’s middle class wages have increased only moderately. Given this fact, whether more married women with children are working because they want to or not is a secondary question.

Ricardo January 18, 2012 at 8:27 am

Also, I don’t know how fascinating an article from February 2007 can be if it claims “Americans, contrary to myth, are not “drowning in debt.” Like all myths, this one contains a piece of the truth. According to the Federal Reserve’s triennial Survey of Consumer Finances, median debts for American households have risen significantly—by about $29,000 since 1989. However, much of this new debt is mortgage debt, and most families would consider buying a house an investment, not a negative event.”

Yikes.

TallDave January 18, 2012 at 11:31 am

Haha, yep that was certainly a bad call. If only we could go back and undo housing policy.

Marian Kechlibar January 18, 2012 at 4:31 am

If American poor got consistently poorer over decades, where are all the favelas of mud huts without electricity and potable water?

Bruce Cleaver January 18, 2012 at 6:50 am

Answer: Detroit.

:)

Lars January 17, 2012 at 9:16 pm

There are perfectly good measures of inequality. That right wing economists manufacture gimmicks like this to pretend there is no problem is nice evidence that they are first and foremost propagandists.
Given any realistic, slight increase in inequality this measure will show the same misleading, meaningless behavior.

TallDave January 17, 2012 at 11:25 pm

I can’t help but be reminded of the many persuasive arguments made in 2009 on the totally reasonable basis that very small differences in life expectancy and infant mortality are wonderful proxies for the quality of health care between OECD countries, and totally don’t need to be adjusted for confounding factors like ethnicity, lifestyle, or different reporting standards that are clearly just gimmicks invented by right-wing propagandists to pretend there isn’t a problem.

Samuel January 18, 2012 at 12:36 am

+1 and I read that all in one breath.

Lars January 18, 2012 at 7:23 am

As cogent as ever, TallDave.

Cliff January 18, 2012 at 12:26 am

How so? Any slight increase in inequality will result in people moving up from middle to upper class? I doubt that.

Lars January 18, 2012 at 7:22 am

By this metric, yes. Imagine incomes for for everyone below 1.5 times the median are stagnant or decreasing while those above are skyrocketing upwards. This metric will show no change, by definition. Now imagine a slightly more realistic scenario where some of those increases bleed over into the upper edge of the “middle class”. Now you have increasing inequality with a shrinking “middle class” losing people to the “upper class”.
More generally, this will happen with any concave function that gets more concave. The defined interval will shrink more on the higher side than the lower.

TallDave January 18, 2012 at 11:25 am

Except that the number of households with income over $100K doubled, so that’s not what happened and all you’ve done is present a mildly interesting but irrelevant scenario.

Lars January 18, 2012 at 11:42 am

That in no way contradicts what I described (the simplified scenario yes, but not the general principle). Wiship chose a measure that is fairly insensitive to changes in inequality and is guaranteed to give him favorable sounding results.

TallDave January 18, 2012 at 12:17 pm

It doesn’t contradict your general principle because your general principle is as irrelevant to reality as your example.

The measure is not remotely guaranteed to give favorable sounding results, that’s just nonsense.

Lars January 18, 2012 at 12:57 pm

What fun. With this definition of middle class, by increasing inequality I can have the middle and upper classes grow and the lower class shrink. Everyone wins!

TallDave January 18, 2012 at 1:53 pm

Yeah, let us know when that happens.

Marian Kechlibar January 18, 2012 at 4:36 am

So, what kind of problem do you precisely have with inequality per se?

People aren’t equal in the sense that products of their works aren’t equally useful.

If a guy founds something like Facebook, he deserves to be fantastically rich.

The only problem with inequality that I see is the fact that many of the rich are politically connected cronies who feed on public money, across the political spectrum, and not productive capitalists or their legitimate heirs.

Gunnar Tveiten January 18, 2012 at 5:55 am

No problem with inequality per se.

Potential problem with *growing* inequality. This would only be justified if the productivity of the elite grows leaps and bounds quicker than the productivity of everyone else, and that, frankly, doesn’t seem plausible.

A more plausible explanation is that they’ve used the influence their wealth and connections give, in order to push for political changes that benefit their own class, which makes them even richer, rinse and repeat.

TallDave January 18, 2012 at 11:19 am

It seems pretty reasonable that the higher end of the productivity scale is getting stretched out, while unskilled work is not getting more valuable nearly as fast. One would expect this as a result of globalization — e.g. Google, Amazon, Facebook, etc have access to a lot more customers.

It doesn’t seem plausible that rentseeking (which is a problem) could be nearly as large.

Lars January 18, 2012 at 7:32 am

I was addressing an obvious attempt to obscure the existence of increasing inequality. I’m not interested in discussing the resultant problems with someone who pretends that people worried about them are complaining about guys like Zuckerberg.

TallDave January 18, 2012 at 11:15 am

Sanctimonious twaddle. If anyone was being deviously propagandistic it was the people claiming that poor people who moved past the middle class were somehow a problem.

Lars January 18, 2012 at 11:36 am

Let me know if you find anyone who’s ever claimed that. I will dutifully denounce them.

TallDave January 18, 2012 at 12:18 pm

Doesn’t anyone read the article?

In determining how those initial mobility estimates were computed, I was surprised to realize that the Administration had defined “upward mobility into the middle class” in such a way that it did not count “upward mobility into higher-than-the-middle-class.” This…unusual definition had the effect of understating how many poor people become at least middle class, which is certainly the relevant figure.

Lars January 18, 2012 at 12:32 pm

That would be a bad thing to do, although I don’t see enough context to know if he’s correct, as it could be defined that way to avoid some sort of double counting.
I did find, after finally reading his column, that the middle class definition is from Krueger, not Winship as I had thought. So this is more about Winship cleverly exploiting a poor definition, rather than constructing it himself.

Claudia January 17, 2012 at 10:25 pm

Reading Scott’s whole post reminded me of a cool post on what eonomists should be doing in the government: http://notthetreasuryview.blogspot.com/2012/01/economists-in-government-what-are-they.html Summary: explain economics to non economists, apply an economics toolkit to policy problems, and synthesize the best available research. Scott is not in the government but being at a DC think tank gets him close to this mission…well done. Of course it also shows how hard the job is inside the government…where economics is not the only piece of the puzzle.

Claudia January 18, 2012 at 10:56 am

Here’s a post which takes issue with Scott’s critique of the Great Gatsby curve. Agreeing “on the facts” is not easy…but I still think agreeing on the policy implications is harder. That’s why it’s so important to be clear about you’re underlying assumptions and world view. They are probably going to drive the debate more than anything else. Of course, good data work should be done, but it is not a cure-all.

Claudia January 18, 2012 at 10:58 am
DK January 17, 2012 at 10:26 pm

Who is Scott Winship and why does he not, apparently, understand that “median” is not some sort of fixed number?

TallDave January 17, 2012 at 11:32 pm

That’s an excellent point, the proportion of people today living below the PPP-adjusted median income of the 1970s is probably around 10%.

Considering the growth in transfer payments, it might even be closer to 1%. That would put an amusing twist on the OWS protests!

Andre January 17, 2012 at 10:53 pm

This article is missing specific numbers for my taste. If the Median is stagnating, or declining in real terms, because there are more people at the bottom you don’t have to make any gains to move up and out of the middle class. Is that not the point of most income inequality talk? The top 1% absorbing all growth won’t shift the median income one way or another.

Willitts January 17, 2012 at 11:39 pm

The top 1% CAN’T absorb all the growth. First, they actually have to pay other people for their labor and other owners for their resources to earn profits. Second, if the top 1% consume or invest any of their extra wealth, other people benefit from it.

Gunnar Tveiten January 18, 2012 at 6:07 am

They can get darn close. If they invest, the money goes to those people owning the things they invest in. A fairly large percentage of those things are already owned by those at the top.

How large a fraction of the publicly held stock is held by someone in the top 1% group ?

Cliff January 18, 2012 at 9:33 am

Good question, where can I look it up? I know pensions are big players in the stock market.

TallDave January 17, 2012 at 11:47 pm
Gunnar Tveiten January 18, 2012 at 6:05 am

By all means. But notice page 6, and that it’s talking of married couples.

+1% in real income over 25 years, despite higher workforce-participation by women, sure as hell feels like a decline in real wages.

Even +14% over 25 years – which is the average for the bottom 30%, is very much unimpressive, given that women work a lot more.

And the graphs stop in 2004, that’s 8 years ago.

TallDave January 18, 2012 at 11:27 am

Women working more is good for everyone (comparative advantage due to productivity gains).

Marian Kechlibar January 18, 2012 at 12:58 pm

For everyone – except the unborn. Pretty much all my highly qualified female friends have less children than they would want, and openly say so. They can’t afford to lose their time on child rearing.

The USA also suffers from this kind of demographic problem in the upper middle professional class, and its overall fertility rate is only improved by the poorer strata of the society.

The situation in Europe and East Asia is much worse, some of the most developedd nations have basically stopped reproducing in their career chase (see: Hong Kong).

Finch January 18, 2012 at 1:22 pm

I’d note that in Europe and Asia the birthrate problem is considerably _worse_ than it is in the US.

While I agree that a lot of stuff is better when women choose not to work, the evidence at least suggests that not having that choice or having it be harder to work or return to the workforce after an absence causes them to be more conservative about bearing children. So even if I abandoned all my respect for people’s choices and became dictator-for-life, I’d be reluctant to declare “women can’t work,” because I think there’s a substantial chance it would backfire.

Finch January 18, 2012 at 1:23 pm

> I’d note that in Europe and Asia the birthrate problem is considerably _worse_ than it is in the US.

If it’s not clear, it’s considerably harder for women to have real careers in those places. It is particularly hard to combine a career with working. Ever try shopping for groceries in Paris?

Finch January 18, 2012 at 1:45 pm

>It is particularly hard to combine a career with working.

Egad.

It is particularly hard to combine a career with _family_.

TallDave January 18, 2012 at 1:56 pm

Uh oh, non-economic goods.

It’s a good point, though.

Randy January 18, 2012 at 1:04 am

The cost of reproduction has risen by a factor of nearly 4 since the 50s, fertilizing the portfolios of the elites with the decomposing marriages, fetuses and sometimes bodies of the bulk of the baby boom generation, leaving a demographic hole being filled with imported slaves* by those same landlords.

The elites calls this “progress”, even as as the price of homes was removed from the consumer price index while introducing CPI factors like “hedonic value” and “imputed rent” to make it appear “real” earnings have increased over the time period of demographic collapse and loss of ethnic enfranchisement to imported laborers for the baronage.

I call it genocide.

*It is really being too kind to the elites to call the imported laborers “slaves” since they don’t have to pay for their human capital upkeep—the rest of us do via social programs. Southern plantation owners were far more moral than these sorry excuses for human beings.

Randy January 18, 2012 at 1:09 am

The two big ticket necessities:
3 bedroom house price increase: 22 times
1954 $ 10,250
2006 $219,375

car price increase: 18 times
1954 $ 1,567
2006 $28,000

Even if we grant that the quality/cost ratio of manufactured goods has gone up so much during the last half century that $1,567 for a used car in 2006 is as good as a new car was in 1954, it doesn’t bring down the sum of the 2 major debt-service items much:

house+car increase: 19 times
1954 $ 11,817 =$1,567+$10,250
2006 $220942 =$1,567+$219,375

So the debt-service load in a family household has gone up nearly a factor of 20 in the last 52 years.

And don’t kid yourself that it didn’t hit hardest at the peak child-bearing potential of the mid-to-late boomers who were paying 20% mortgage rates when they were trying to form families in the early 1980s.

Has household income kept up? Hardly…

average household income increase: 13 times
1954 $ 4,137 (one wage earner)
2006 $54,000 (two wage earners)

So household income has gone up only about 70% as much as the essential household debt service in the last half century.

Oh, but wait—that “household” in 1954 was one income and the income was relatively stable—the woman stayed at home and raised the kids.

How can we factor not only that both parents must work in 2006 and not only are each of their jobs less secure, but the effective income of the household, adjusting for risk of not being able to meet debt payments for a substantial period of time?

Here’s a realistic option: We can reasonably say that the odds of both parents being out of work at any given point of time in 2006 is comparable to the odds of the father being out of work in 1954. Hence the reliable household income—the income stream that can service debt without foreclosure—is approximately 1/2 of the household income. Certainly we can say that there will be “fat” times when both parents are working and they can save money for the lean times—but then one of the two parents is likely to be making substantially less money than the other, so we can say the savings during the times they are both working can be put toward bringing the lower-earning working parent up to par with the average of the two in terms of making a reliable payment to the mortgage lender.

Hence, making appropriate adjustments we have a household income increase of approximately 7 times since 1954—and we haven’t taken into account the loss of value of having the full time housekeeper. So let’s take that into account as well. What are the real costs to a family with children of having both parents working rather than one dedicated to staying at home? Is it another factor of 2? Probably not. But we can say the income increase is actually only a factor of 5 rather than 7.

Since the cost of the two major debt items has gone up a factor of 19, it looks to me like the real cost of reproduction has gone up by about a factor of 19/5, or nearly a factor of 4.

Our authorities—nearly to the person—call this “progress”.

Given the demographic collapse followed by mass immigration that ensued, under anti-nationalist ideologies designed to dissolve the demography of the US, I call it genocide.

Cliff January 18, 2012 at 9:35 am

Worst example ever. The real price of cars and houses have declined over the last 60 years significantly.

RG January 18, 2012 at 9:55 am

Well, for it to be genocide, we’d need to see some bodies. Otherwise, A- for the rhetoric.

TallDave January 18, 2012 at 11:29 am

You clearly did not grow up in the 1950s using 1950s cars and houses. Purchasing power is much different today.

Marian Kechlibar January 18, 2012 at 1:01 pm

This comparison absolutely fails to take qualitative changes into account.

A car in 1950 wasn’t the same as in 1910, and, in 2012, it is very different still.

Healthcare in 1950 barely knew antibiotics.

Houses without flushing toilet were commonplace around the US countryside.

Randy January 18, 2012 at 2:49 pm

The price of homes was removed from the consumer price index while introducing CPI factors like “hedonic value” and “imputed rent” to make it appear “real” earnings have increased over the time period of demographic collapse and loss of ethnic enfranchisement to imported laborers for the elites.

Even if we grant that the quality/cost ratio of manufactured goods has gone up so much during the last half century that $1,567 for a used car in 2006 is as good as a new car was in 1954, it doesn’t bring down the sum of the 2 major debt-service items much:

house+car increase: 19 times 1954 $ 11,817 =$1,567+$10,250 2006 $220942 =$1,567+$219,375

TallDave January 19, 2012 at 11:31 am

$1,567 for a used car in 2006 is as good as a new car was in 1954

Adjusted for 2011 wages, it’s vastly better.

TallDave January 19, 2012 at 11:33 am

Here’s what you really want to look at: value per labor-hour.

We are living in paradise compared to the 1950s.

Randy January 19, 2012 at 3:40 pm

I’m looking at the economics of vital statistics and reproduction.

Something like “value per labor-hour” completely ignores and obfuscates it.

A man with a smartphone today that has computing power that would have cost millions of dollars in the 50s is not better off by millions of dollars in terms of reproduction.

The real cost of reproduction has gone up 4 fold, leading to demographic collapse followed by mass immigration under anti-nationalist ideologies designed to dissolve the demography of the US.

This has been and is an ongoing genocide.

Barry January 19, 2012 at 9:25 pm

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