I’ve been reading through the new Pew report (pdf) on this question. I found these to be the two most interesting passages:
As the middle-income population hovers near minority status, the population of upper-income adults is growing more rapidly than the population of lower-income adults. From 1971 to 2015, the number of adults in upper-income households increased from 18.4 million to 51 million, a gain of 177%. During the same period, the number of adults in lower -income households increased from 33.2 million to 70.3 million, a gain of 112%.
I would say America is developing its top twenty percent rather nicely. The future refrain will have to be: “We are the eighty percent!”, or something like that. Then there is this:
The biggest winners since 1971 are people 65 and older. This age group was the only one that hada smaller share in the lower-income tier in 2015 than in 1971. Not coincidentally, the poverty rate among people 65 and older fell from 24.6% in 1970 to 10% in 2014. Evidence shows that rising Social Security benefits have played a key role in improving the economic status of older adults. The youngest adults, ages 18 to 29, are among the notable losers with a significant rise in their share in the lower-income tiers.
That part augurs not so well for our future, given a certain degree of persistence of earnings.
I was part of an NPR On Point discussion of the study.
“I would say America is developing its top twenty percent rather nicely.”
This jars for two reasons. First, as the 20% is defined relative to the remaining 80% you could just as easily say 8 in 10 Americans are not developing nicely, or even that they are all succeeding but in absolute terms
Second, it’s a bit strange for a person with a libertarian bent to say individual success is being “developed” by the state and/or society, rather than the other way around, as in America being being developed by the actions of its free individuals.
You are aware that Prof. Cowen wrote a book, ‘Average Is Over,’ one assumes.
Further, to give you a taste of how Prof. Cowen views the U.S., and its future, in that book he apparently wrote, in all seriousness – ‘We also would build some makeshift structures there, similar to the better dwellings you might find in a Rio de Janeiro Favela. The quality of the water and electrical infrastructure might be low by American standards, though we could supplement the neighborhood with free municipal wireless. Hulu and other web-based TV services would replace more expensive cable connections for those residents. Then we would allow people to move there if they desired. In essence, we would be recreating a Mexico-like or Brazil-like environment in part of the United States, although with some technological add-ons and most likely greater safety.’
That’s right – the general director and chairman of the Mercatus Center is actually advancing the notion that America should create its own favelas for its citizens.
Seems a rather minor issue. But for new people here, does Prof Cowen openly identify as libertarian?
Yes, I believe so. Although he cares about a broader kind of human flourishing than what standard libertarians usually focus on. Reminds me of Amartya Sen. However, I haven’t heard him describe himself as libertarian in a while,
I actually think of Tyler as deeply conservative, always looking to understand and justify the status quo in a way that few others really do. The name Marginal Revolution is a way of acknowledging the importance of Chesterton’s fence. Alex is the revolution.
To be fair, his point seems to be that society is moving towards safe, low cost housing and NOT third world poverty. I would happily accept the first one.
What do you propose? That the poor have to relocate to lower cost of living areas where there is less economic opportunity as they are doing now?
Second, it’s a bit strange for a person with a libertarian bent to say individual success is being “developed” by the state and/or society, rather than the other way around, as in America being being developed by the actions of its free individuals.
It’s not strange if you think Mr. Schaeffer has the moderators smoked out. The anxiety is that there are social phenomena which disrupt the sales pitch for OPEN BORDERS.
Open borders seems to be more of an obsession for gadflies in the comments than it does for the blog posters on this site.
Alex Tabarrok seems to be a proponent of Open Borders. I wouldn’t say he’s obsessive about it, but he continually promotes that point of view.
Open borders seems to be more of an obsession
It seems you don’t actually read what the moderators write.
First of all, I don’t know why you call them moderators since that’s a minor part of what they do. Second, they write quite a lot, most of it having nothing to do with open borders.
Unfortunately the new wave of commentators that have invested this site are obsessed with a few topics — mostly having to do with race and sex, but also open borders and the comments no longer have much value.
and the comments no longer have much value.
The commentary you’re complaining about is in response to what interests the moderators of this site and what they write about. Why you wish to pretend otherwise is beyond me.
Add it to the vast, almost infinite list of things that are beyond Art Deco.
The Great Unwashed doesn’t matter here.
Academics and elites are so far out of touch with how most Americans think that they might as well live on another planet. They resort to mocking Americans’ economic, immigration and terror fears. It’s all they got and it’s nothing.
Shouldn’t you be off swigging a bud light somewhere? Aren’t you afraid if you spend too much time hear among the “academics and elites” you might get cooties and your fellow great unwashed will turn on you?
‘I would say America is developing its top twenty percent rather nicely.’
Compared to the past, when America was noted for developing its middle class rather nicely.
And out of historical curiousity – what was the percentage of members of the old Communist parties, because those members also benefitted rather nicely. Maybe we should just rename that twenty percent the ‘Nomenklatura’ – https://en.wikipedia.org/wiki/Nomenklatura
(This description does a fine job explaining how that system worked, in a way that well funded Virginia School adherents should recognize immediately – ‘Coextensive with the nomenklatura were patron-client relations. Officials who had the authority to appoint individuals to certain positions cultivated loyalties among those whom they appointed. The patron (the official making the appointment) promoted the interests of clients in return for their support. Powerful patrons, such as the members of the Politburo, had many clients. Moreover, an official could be both a client (in relation to a higher-level patron) and a patron (to other, lower-level officials).
Because a client was beholden to his patron for his position, the client was eager to please his patron by carrying out his policies. The Soviet power structure essentially consisted (according to its critics) of groups of vassals (clients) who had an overlord (the patron). The higher the patron, the more clients the patron had. Patrons protected their clients and tried to promote their careers. In return for the patron’s efforts to promote their careers, the clients remained loyal to their patron. Thus, by promoting his clients’ careers, the patron could advance his own power.’)
“Compared to the past, when America was noted for developing its middle class rather nicely.”
And what “past” was that, the immediate post-WWII era? When U.S.- based companies had little international competition (as much of the competition’s industrial plant had been reduced to rubble) and unionization reached its peak (with little opposition from management as large companies could form effective oligopolies and thus pass on any increased labor costs to customers)?
There was a “past” when industrial production required vast amounts of labor and when that labor inputs could not be offshored or automated away. BUT that was a rather brief past; one that no longer exists and, in a globalized economy where better automation becomes available at ever-decreasing cost, one that seems unlikely to return.
Older people sit around in executive and managerial jobs and reap rents off the labor of their younger subordinates, for whom there are few open positions to which they can rise. I’m making my surprised face.
We are the 80%, really? Incomes in the top 1% and .1% are still far outpacing others (let alone assets).
The bit on the elderly does not surprise me, and the Times recently had a story along the same lines. It’s a positive trend but America needs to invest more in its young. Ideally, we could support pensioners with increased immigration but the political climate certainly does not seem to conducive to that at the moment.
The 1 percenters are still doing well, but apparently the story is legit.
Something new happened with the middle class. Some split off. Some joined the rich, and some joined the poor. Since more moved up than down it is called a win. If you identify with the move-up group you might think so, but larger numbers of poor certainly bring challenges as well.
A harsh new world defined politically as makers and takers,?
Way, way more people have moved up then moved down. And most of them didn’t move into the 1%.
And it’s not just about hoping you get some “good paying job” lottery ticket (although I forgive those who know only the public sector for not knowing this.)
The people who have moved up have done a lot more, sacrificed a lot more, than the people who haven’t. I see this in my own school age cohorts and within my own family. It’s obviously part of the story, inconvenient as it is from the commanding heights of the aggregates.
It’s complicated, but page 24, 30-44 year olds split evenly, 8 percent going up, 8 percent going down, reducing the middle.
Perhaps there is more good news elswhere, but that is bad news for the “young family” group.
As I suggested below, I’m tired of the “the economy is awful” narrative that has featured so prominently in my entire adult life lo these past 30 years.
This Pew piece is a perfect example of that: “The American Middle Class Is Losing Ground” is the one-sentence distillation, and it’s a horrible mischaracterization of the report itself.
For one thing, all adjustments are based on CPI-U. Is that the right measure? Since 1971, CPI-U has grown 25% faster than the PCE index. Right there, all the goalposts, all the lines drawn between low, middle, and upper are up for grabs.
But even on their own terms, the alarmism is unwarranted. Easily the biggest thing that jumps off of page 24 is the tremendous progress we have continued to make in eradicating poverty among the elderly.
Most of those other lines haven’t moved so much. Considering the structural changes in the workforce and economy since 1971, I’m more struck by the stability of these numbers, particularly given the subjectivity of the indexing.
The median is doing better- a lot of countries would be jealous of the performance of the US median household over the past 45 years. Nobody is taking anything away from these people. The report (but not the title) is quite clear about this:
“According to the U.S. Census Bureau, which does not adjust incomes for household size, the median income of U.S. households rose from $47,538 in 1970 to $53,657 in 2014, or by 13%. After adjustments are made for changes in household size, the median income of U.S. households is estimated to have increased from $47,220 in 1970 to $62,804 in 2014, or by 33%. Thus, this adjustment has a substantial impact on estimates of how much the wellbeing of American households has changed over time. The greatest impact is in the 1970s, when average household size fell from 3.2 to 2.7.”
I am open to good news, but I am not sure this study supports that as the common case.
Consider the education slices. Some college, 2 year degrees, should be part of the good group. They are not immigrants (or natives) choosing labor as a low goal.
They are striving but 14% fell out of the middle class.
(I have some reservations to this datum myself, as some college and 2 year degrees is a bad grouping. But still.)
Look, because of the goalpost/indexing issue, the whole report is dubious.
When you say “14% fell out of the middle class”, you’re part of the problem. That is not close to a description of what the report says. The report tells us nothing about any individual.
And it sounds like you’re digging pretty deep for the horrible news anyway. I’m not saying everyone is better off. Yeah, some people have suffered declining living standards. I know some of these people. It happens. But you can’t get any of that from this report.
It is hella better to track what happens to a group of people than what happens to full time jobs, because obviously one way to fall out of the middle is to fail to attain a full time job.
I would not doubt for instance that the failed-at-college, like the high school group, have a hard time finding good full-time work.
#2MA
“which does not adjust incomes for household size”
Adjusting for household size means adjusting for the fact that more people are single and families have fewer children. It is not clear this is a ground for optimism instead of an illustration of the fact that people feel the pressure of stagnant wages and respond by having fewer children. Many conservatives — the same ones pushing back against the suggestion that living standards are stagnant for the middle class — also do not agree these are unalloyed goods.
“The people who have moved up have done a lot more, sacrificed a lot more, than the people who haven’t”
That’s a very nice story to tell yourself. It’s almost certainly false and you are not stupid enough to believe your personal experience generalizes well.
Yeah, IT IS just a lottery, isn’t it?
I’m planning to sit at home and wait for someone to call me with a good job. Wish me luck!
/fingers crossed
“That’s a very nice story to tell yourself. It’s almost certainly false and you are not stupid enough to believe your personal experience generalizes well. ”
If you consistently work 50-60 hours per week at most jobs in the US, you’ll be comfortably middle class in the US. That experience generalizes well.
It’s funny that such an obvious and banal observation can be considered controversial, let alone wrong.
What if you work 50-60 hours per week spread across two jobs?
@Original D,
Does this describe a lot of people? How many?
Here’s my answer. The point is not working 50-60 hours per week per se. What is valuable to employers is “whatever it takes.” It’s the open-endedness of the commitment that gets the bucks.
Two jobs at 25-30 hours apiece don’t have this.
But again, this has to be a tiny number of people. And, frankly, someone who demonstrates this kind of industry will probably move up.
One day we will all be above-average
Jared Bernstein today (I think) at TPM:
Fortunately, at least in an analytic sense, when it comes to inequality, all the surveys point in the same direction: toward greater economic distance between people and households in their economic outcomes. Though there may be some economists and policy makers who deny that inequality has increased—you can always find (or pay) someone to take the other side of any position in economics—as a very active participant in this debate, I can tell you that we don’t hear much from them. It’s easier to find a denier of global warming than of rising inequality.
I am sorry if that parallel is painful.
“One day we will all be above-average”
I checked with yesterday and they said we already were. But then I checked with tomorrow and they said we were way below the curve. /progress
“..the population of upper-income adults is growing more rapidly than the population of lower-income adults.”
But in absolute terms from this study, the upper-income population went up only 32.6 million while lower-income went up 37.1 million. The percentage of increase comparison (177% vs 112%) seems of little value for broad conclusions, especially given the large disparity in 1971 initial group sizes.
I read those figures and come to exactly the opposite conclusion. Looking at the absolute numbers is far less useful than the percentage changes. Indeed, following the 40 year trend, the absolute numbers will favor the upper-income population in a decade or two.
I’m unclear how studies like this account for possible changes in regional wage and cost of living adjustments. If (to a very rough approximation) high-wage jobs are in high-cost (coastal) areas while lower-wage jobs and retirees are in low-cost (sunbelt) areas, wouldn’t these measures be confounded by those population shifts over time?
They use a pretty basic method, without any of those adjustments. I suppose this is because the broad range of income is meant to overcome much variation.
““middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three.
If more families of three fall below $42k, that is bad, and I suppose it is a moral question if more families rising above $126k makes it worth it.
As cities grow larger that might not be fair. Cities are much more expensive and offer higher wages, so if the US becomes more urban inequality should go up. High costs partly reflect ammentities (don’t adjust cost of living) and access to high paying jobs (probably should adjust for inequality discussions).
Lots of interesting data. I would resist reaching broad conclusions about what the data means. For example, the occupation in which incomes have risen the most is farming, forestry, and fishing while the occupation in which incomes have fallen the most is teaching. Page 26 of the Report. Farming? Who knew! Now I understand why rich people are investing so much in farming. The data on mean net worth on page 47 is also fascinating. For example, why did the mean net worth of lower and middle income families fall so much more (percentage wise) during the Great Recession as compared to the mean net worth of upper income families? I suspect for the same reason their incomes have changed in the same directions: location. Being in the right place at the right time improves both income (better job opportunities) and net worth (housing). It’s the geography, stupid! Paradoxically, those who are wrongly located are more likely to migrate (if they migrate at all) to places that don’t offer the best prospects. Is the explanation that the migrators don’t have the skills needed for jobs in the “best” locations or can’t afford the housing in the “best” locations? I suspect it’s a little of both. My one criticism of the Report is that it doesn’t break down the data geographically.
I think those farmers etc all benefit from consolidation. Bigger operations, fewer employees, more machines.
Quoting ourselves:
Perhaps our simple explanation, the middle class has shrunk because Generation X, the group of Americans currently in their middle-income earning years, is significantly smaller than either the Baby Boom generation (a.k.a. “old people”) or the Millennials (a.k.a. “young people”) is just too simple to be considered as the cause of the observed result, despite the data that clearly supports it….
On page 24 of the Pew report we see the same pattern repeated for younger age groups, a reducing of the middle (as defined) and increase at the two ends.
That is, only considering 30-44 year olds, the pattern is there.
Oh snap!
Not sure why Tyler thinks current seniors have been getting Social Security benefits their entire lives.
In one sense, they have. Much of my wealth (as I near retirement age) exists because my parents (and grandparents) had Social Security, which allowed me to spend much less on them during their retirements.
For me the interesting data was:
By gender and marital status, all the growth in low-income is among single men.
By ethnicity/skin color, all the growth in low-income appears to be among recent immigrants (mostly Hispanic and some Asian), whereas blacks are most improved, both in moving out of low income and into upper income.
Isn’t this the trend one would expect with more career orientated women?
Basically back in 1970 it was generally 1 income families so the delineation between poor/middle/rich was the quality of jobs.
Mix in a bunch of 2 and 0 income families and the households are placed in the groups on both quantity and quality of jobs.
If people self select spouses based on similar earning power, the number of rich is going to grow and the middle class is going to shrink.
+1.
This seems important. It matches my experience. Nice towns have two distinct populations – dual-earner households with incomes of X each and single-earner households with SAHMs and incomes of 2X for the single earner. Often they have very different characteristics.
Single men also work less and less hard and earn less.
Also as we get richer more people opt for less paying and less work. I know guys who fall into each of those categories.My cousin quit his well paying but physical hard manufacturing job and worked in retail for low pay, he never married and to me it seemed a rational option for him.
I’m not surprised the elderly are doing well relative to the younger age groups. Government influence over the economy has been increasing in the form of social welfare and insurance programs that redistribute income ( eg Medicare and Social Security) and regulations (e.g. zoning laws). I guess it’s the inevitable outcome when people can’t vote for the first 18 years of their lives, then don’t vote much for the next twelve years while people on the other end of the age spectrum vote and lobby in great numbers.
+1
I think it’s broader than 20%. Social Security has good, if simple wage data. It’s by individuals, not households, but it shows (in 2014$ based on PCE indexing), that in 1990 79% of jobs pulled in less than $49K, and now the figure is 70%.
So, 21% of jobs in 1990 paid $49K or more, and now 30% of jobs do.
Most of this increase is represented by jobs that pay <$100,000 per year.
The taken for granted narrative about the awful economy and inequality is tiring.
What irks me about ‘the economy is terrible’ meme is that we have had a roaring economy for the last 25 years, with one small 5 year period of a slower economy. (Actually the very early 90s were a little difficult as well).
No one seems to care about the 25 fantastic years. I guess that doesn’t sell.
Well, if your object is to manufacture patron-client relationships so you and yours can earn a living as salaried employees in a helping and caring agency, it’s a problem for your business model if there’s nothing much for you to do. Hence the concurrent propagation of social and economic hypochondria. For someone like Robert Reich to acknowledge that the common-and-garden working class or someone like William Bowen to acknowledge that the black bourgeoisie do not need what they be peddling is just too much reality.
Joseph Epstein, former Great Society official, literary critic, and erstwhile contributor to Dissent, abruptly walked away from the left when he realized around age 40 that he rather liked the world in which he lived and didn’t think the social work projects he’d been involved in ca. 1965 had done much good in correcting what was wrong with it.
+1 to all 3 of these posts
As far as old people used to be poor, now they’re rich, well…
Yeah. 80 years ago, America was a poor country by today’s standards. Almost everyone was poor. Almost no one had wealth. Getting old was scary.
Now, we are a rich country. In a rich country, people accumulate wealth over their lives. Older people are a lot wealthier than young people. So much statistical inequality is tied up in this simple demographic fact.
Oh, for the good old days of near-universal poverty, zero net worth for almost everyone.
“Oh, for the good old days of near-universal poverty, zero net worth for almost everyone. ”
The correct modern vernacular is: Income Equality.
+1
I don’t think it’s as simple at that. With the growth of wealth redistribution programs since FDR, a greater percentage of national wealth is going from the young to the old.
One point about this study is that it goes some ways to explain gentrification and hyper-gentrification. There seem to be more upscale neighborhoods in cities because there are literally millions of more upscale people. There are only a limited number of city centers. It seems in the ones where I have lived that they are filled with wealthy people and the homeless, but not much in between.
I read the original comment quickly and forgot to mentally check the figures given with overall US population growth during this period.
U.S. population has grown alot since 1971. The population in 1971 was 213 million, and is now something like 322 million, a total increase of 109 million people.
So of this 109 million increase, it turns out that 37 million of that came from the lower classes, and 33 million came from the upper classes. Presumably 39 million people were added to the middle classes. The middle classes still win!
Seriously, given that the US was a middle class nation in 1971, adding about the same number of people to each class means that the middle class will shrink as an overall percentage of the population. But this doesn’t seem like a really big deal. Its not like what happened with the GDP increase, of which the middle class basically got nothing.
These discussions are inane. If the share of the population in salaried employment and small business is not declining, the ‘middle class’ is not shrinking. That share has always been a minority (around 30% as we speak). Since 1929, the share of personal income accounted for by employee compensation has varied between 60% and 70%. The degree of skew in the income distribution also varies from one period to another. No need for social hypochondria.
“The youngest adults, ages 18 to 29, are among the notable losers with a significant rise in their share in the lower-income tiers.”
We have been importing an underclass since the early 70s. What do you expect?
Led there by the highlight of Peter Turchin’s comment a few days ago, I found his thoughts on the over-production of elites to be interesting. I must say if you step back and look at the current rabble-rousing as competition among those with power positions and those seeking power positions, things do make more sense. Of course, they can’t promote inequality between the wealthy and the almost as wealthy, so the 1% vs. 99% is what is marketed but, oddly, a lot of rich kids seem to be running that 99%.
This has, of course, been observed by many. Orwell observed in ‘The Road to Wigan Pier’:
“A person of bourgeois origin goes through life with some expectation of getting what he wants, within reasonable limits. Hence the fact that in times of stress ‘educated’ people tend to come to the front; they are no more gifted than the others and their ‘education’ is generally quite useless in itself, but they are accustomed to a certain amount of deference and consequently have the cheek necessary to a commander.”
This post is a good start on Turchin’s discussion.
http://peterturchin.com/blog/2013/11/10/bimodal-lawyers-how-extreme-competition-breeds-extreme-inequality/
A commenter at Crooked Timber linked to this Naked Capitalism blog post, which discusses a Financial Times story on the Pew report:
http://www.nakedcapitalism.com/2015/12/demise-of-the-us-middle-class-now-official.html
What I found interesting was the graphic reproduced from the FT, which the NC blogger found “to be more informative than the Pew charts that presented the same information.”
The graph, which shows the “hollowing out” of the middle class between 1971 and 2015, seems to be interpreted by the NC blogger and commenters as bad news, but unless my skill at reading graphs has eroded entirely, it seems like amazingly good news – the “hollowing out” is overwhelmingly in the positive direction. I honestly wonder what I am missing.
No kidding – that’s amazing. I am also curious if I’m missing something.
Maybe “Middle Class Still Here” doesn’t get headlines.
The ‘demise of the middle class’ has been a recurrent trope of a certain sort of opinion journalism (NPR, Barbara Ehrenreich, Thomas Byrne Edsall, &c). Michael Dukakis made use of it, “The rich are getting richer, the poor are getting poorer, and the middle class is getting squeezed”. (Of course they never mention immigration as a problem for native low skill workers). “The rich get richer and the poor get poorer” was already a cliché when the ‘demise of the middle class’ took off. I’m in my 50s, and the rich have been getting richer and the poor getting poorer for so long you’d think most of us would have a living standard somewhere in the vicinity of Bohemian serfs ca. 1770.
Brian Donohue the major difference between the CPI and the PCE deflator is that the PCE does not contain housing.
Housing is counted in investment in the GDP accounts.
That accounts for over two-thirds of the more rapid growth of the CPI since the 1970s, are just about any other extended period.
If you are measuring changes in a populations standard of living is the proper measure one that excludes housing — the single largest item in the CPI ?
Nope. Housing gets less weight in PCE, but it’s in there.
My point is that there is nothing close to a consensus in measuring changes in cost of living. It’s complicated.
If a study uses one measure to compare experience 45 years apart, then draws hard lines between low, median, and upper based one that one measure, it’s dubious.
Change to a different measure, and the story falls apart. Not impressed.
My observation is that people rarely fall out of the middle class because the middle class is a set of morals and connection and that they will almost always be fine. It is not so much how much money you make! see here http://earlyretirementextreme.com/how-i-live-on-7000-per-year.html for example.