from Mark J. Perry, Scholar at The American Enterprise Institute.
Scott Shackford wrote on the Reason blog recently that “The Middle Class Is Shrinking! Because They’re Getting Rich!” and referred to [this] chart
that was featured in the Pew Research Center’s recent report titled “The American Middle Class is Losing Ground.” However, as the title of Scott Shackford’s blog post suggests, the share of middle class households is getting smaller for a good reason—it’s because they’ve moved up to higher income groups. Specifically, according to Shackford:
It is true that Pew’s analysis shows that the number of households that fit within their categorization of middle class has shrunk by 11 percentage points since 1971 [from 61% to 50%]. It is true that the proportion of households that are classified as lower class has increased from 25% to 29%. But it is also true that the proportion of households that are classified as upper class has increased from 14% to 21%.
That is to say, part of the reason that the middle class is disappearing is that they are succeeding and jumping to the next bracket. And a greater number of them are moving up than moving down. Be wary of the assumption that the drop in the middle class is a sign of a crisis.
Referring to the Pew Research Center report, Warren Meyer pointed out recently on The Coyote Blog (“Are We Really Going to Sell Socialism in This Country Based on the Fact that the Middle Class is Getting Rich?“) that “2/3 of the [middle-class] losses were because they moved to ‘rich.’” That is, of the 11 percentage point loss in the share of middle-class households between 1971 and 2015, 7 percentage points represent the middle-class households who moved up to one of the two highest-income groups, which represents 7/11, or 64% of the shrinkage of middle-class households.
I’ve written before about how, yes, the middle class has been disappearing . . . but disappearing into higher income groups as Scott Shackford reports. See my most recent CD post here. Here’s an update of some of the analysis in that post using more recent Census Bureau data on household income.
The . . . chart above paints a picture of an America with rising incomes for many American households and lots of upward income mobility since 1967, using recently updated Census Bureau data through 2014 available here. In 1967, nearly six of every ten (58.2%) US households earned $50,000 per year or less (in 2014 dollars), about one in three (33.7%) earned $50,000 to $100,000 and fewer than one in twelve households (8.1%) earned $100,000 or more. By last year, fewer than half of US households (46.8%) earned less than $50,000 per year, 28.5% earned $50,000 to $100,000, and most remarkably about one in four (24.7%) American households now earn $100,000 or more. For those three income categories, the biggest change was the 16.6 percentage point increase in the highest income category of $100,000 or more over the last 47 years (from an 8.1% to 24.7% share), which reflected an 11.4 percentage point decrease in the share of US households in the lower-income category ($50,000 income or less) from a 58.2% share to 46.8%, and a 5.2 percentage point decrease in share of households earning $50,000 to $100,000 per year (from 33.7% to 28.5%).
Stated differently, the share of American households earning $100,000 or more per year (in 2014 dollars) increased more than three-fold from 8.1% in 1967 to 24.7% in 2014. If the 8.1% share of households in 1967 earning $100,000 or more hadn’t increased over time to 24.7%, there would only be about 10 million US households today (out of 123.2 million) earning $100,000 or more, instead of the actual number of more than 30 million American households in that high income category. Thanks to America’s economic dynamism, upward mobility and rising incomes, there are now 20+ million more American households earning annual incomes of +$100,000 annually today (30.4 million) than there would be if the 8.1% share of high-income households that prevailed in 1967 hadn’t changed (only 10 million households).
And think about it for a moment and let it sink in — there are now more than 30 million US households with annual incomes of $100,000 or more. And the share of American households with that level of high income has increased by more than three times since 1967! And then compare that picture of a prosperous America to the narratives we hear all the time that the American middle class is: losing ground, falling behind financially, disappearing, stagnating, no longer a majority, fill in the blank ___________.
Bottom Line: I think Warren Meyer’s 10-word summary about the shrinking middle-class says it best and most concisely of all: 2/3 of the losses are because they moved to “rich.”