America’s once-thriving middle class is slowly fading away

Guest Post by Quetin Fottrell

The U.S. is the only country in which fewer than 60% of adults were in the middle class. The U.S. has the largest percentage of those who were lower income (26%) compared to 11 European countries.

What’s going on with America’s middle class?

Some members of America’s middle class are getting richer and moving up in the world. But millions of lower income people are also getting left behind. The share of people in the middle class in the U.S. is less than in any of 11 countries from Western Europe, according to a new report by the Pew Research Center, a nonprofit think tank in Washington, D.C., and has fallen to 59% in 2010 from 62% in 1991. “The American experience reflects a marked difference in how income is distributed in the U.S. compared with many countries in Western Europe,” the report said. “The U.S. has a relatively large upper income tier.”

‘Income inequality, or the hallowing out of the middle class, has been seen in both the short-term and in the years going back before the financial crisis and the Great Recession.’

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American economic growth has been a double-edged sword for many Americans. In 2010, households in the U.S. were more economically divided than households in the selected Western European countries analyzed by Pew. The U.S. is the only country in which fewer than 60% of adults were in the middle class. However, compared with those in many Western European countries, a greater share of Americans were either lower income (26%) or upper income (15%). The percentage of people who are middle class ranged from 64% in Spain to 80% in Denmark and Norway.

“Income inequality, or the hallowing out of the middle class, has been seen in both the short-term and in the years going back before the financial crisis and the Great Recession,” says Mark Hamrick, Washington, D.C. bureau chief for the personal-finance site Bankrate.com. “The loss, or migration, of manufacturing jobs is part of the story. For example, as American consumers have gotten increased access to cheaper clothing and electronics, they have helped to spur employment of less expensive labor elsewhere. Consumers have benefited in the U.S. at the expense of many workers.”

But others say that many middle-class Americans are moving up in the world. “America’s middle class is disappearing,” says Mark Perry, professor of economics at University of Michigan-Flint, “but into higher income groups.” In inflation-adjusted dollars, the share of U.S. households making $100,000 or more has more than tripled between 1967 and 2017, from 8% to 26%, according to U.S. Census data, while the percentage of middle income ($35,000 to $100,000 a year) has fallen. However, lower income U.S. households ($35,000 or less per year) have only slightly fallen over the last four decades.

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The shift out of the middle class is a sign of economic progress, irrespective of changes in household incomes overall, wrote Rakesh Kochhar, an associate director of research at the Pew Research Center and author of the report. Some countries with shrinking middle classes saw a rise in household incomes, showing that many people are also moving into the upper-income tier in all countries with a shrinking middle class. The median incomes rose in Luxembourg, the U.S., Norway, the Netherlands, Denmark, France, Ireland and the U.K. between 1991 and 2010.

MarketWatch photo illustration/iStockphoto, Everett Collection

America’s middle class is disappearing, but into higher income groups. In inflation-adjusted dollars, the share of U.S. households making $100,000 or more has more than tripled between 1967 and 2017.

The middle-class share of the adult population fell in seven of the 11 Western European countries examined — Norway, Denmark, Luxembourg, plus Finland, Germany, Italy and Spain — mirroring the long-term shrinking of the middle class in the U.S. The bad news: Incomes barely budged or fell in those latter four countries. However, Pew reported that the middle class rose in the Netherlands and Spain, and soared in Ireland and the U.K. Ireland experienced the most rapid growth in income from 1991 to 2010 and the biggest expansion of the middle class.

“The U.S. represents a significant exception to this general relationship between national income and the middle-income share,” Kochhar noted. “The median income in the U.S. — roughly $53,000 per year — exceeded the median income in all countries but Luxembourg in 2010.” However, even as more middle-class Americans are moving up in the world, there is also a higher level of income inequality. “The gap between the earnings of households near the top of the income distribution and the earnings of those near the bottom is the widest in the U.S.,” he wrote.

Pew defines middle class adults as those with an annual disposable household income from two-thirds to double the national median disposable household income, after adjusting for household size. The income boundaries vary across countries, depending on a country’s own median disposable household income. Thus, the living standards of the middle class and of households in other income tiers also vary across countries. But there’s no universal definition. Americans regard a college education as a critical component to becoming middle class, previous surveys suggest.