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America’s Middle Class is Now a Minority

America’s middle class has shrunk by almost 20 percent since the 1970s and now is a minority of the population of the United States.

The Pew Research Center has determined that only 49.9 percent of Americans now qualify as members of the middle class by earning a minimum of $41,869. There are currently about 120.8 million U.S. adults with incomes in the bracket of two-thirds to twice the overall median income range that is associated with the middle class. That means that the 121.3 million in lower- and upper-income households combined now outnumber the great middle.

The Bureau of Labor Statistics has been collecting data on this workforce since 1964. The hourly earnings of the middle class peaked in 1971 at $22.47-per-hour (in today’s dollars) during the Nixon Administration, with a record 62 percent of Americans in the middle class.

Inflation-adjusted hourly earnings began crashing during the Carter Administration, and was down 19 percent at $18.13 until Bill Clinton’s 1996 agreement to end “Welfare as we know it.”

Inflation-adjusted wages then recovered, but have stagnated during the Obama Administration at $21.01, about the equivalent of where they were in 1979, under Carter.

The biggest reason for the shrinking middle class is that the higher income groups have seen their percentage of the national income rise from 29 percent under Nixon to a record 49 percent. The income percentage of the poor stayed flat at about 10 percent, but the middle class’s percentage of national income plummeted from 62 percent under Nixon to 42 percent today.

This 19 percent inflation-adjusted wage and income crash explains why the percentage of the middle class shrunk by about 19 percent. Some of this inflation damage was offset by the housing bubble. But since 2000 and the Great Financial Crisis of 2008, the median wealth (assets minus debts) of the middle class has declined by 28 percent.

The percentage of Americans in the upper income bracket has more than doubled since 1971, from about 5 percent to 12 percent.

Pew calls the growing demographic shift the “age of inequality.” The rich have seen incomes not-adjusted-for-inflation grow the fastest, rising by 47 percent to $174,625 in 2014. That compares to a 34 percent gain for the middle class, and a 28 percent increase for the poorest households.

Some 120.8 million adult Americans lived in middle-class households this year, according to Pew. That’s slightly less than the combined number of 51 million upper-income adults, and those at the 70.3 million in the lower tier.

Blacks have been least affected by the shrinkage of the middle class over the last 45 years. About the same proportion–45 percent–of blacks are in the middle class today as in 1971, but the percent of low-income blacks is down from 48 percent to 43 percent.

The biggest losers have been the youngest adults, ages 18 to 29, who saw their percentage of income fall by 5.4 percent. Young people’s higher college attainment may have helped a small section of millennials move up to the higher income bracket, but overall it has had little positive impact on the average millennial making it into the middle class.

The great U.S. middle class arose after World War II. Some economists trace the development to the federal government’s G.I. Bill in the 1950s, which raised the educational attainment level for millions of veterans at rock-bottom costs.

But most Americans do not realize that the bill helped more veterans with non-college training than it did with university education. Of the 7.8 million that took advantage of the program, only 2.2 million people went to college, and 5.6 million attended what was called “sub-college training.” These classes included emerging technical jobs in society, like auto repair or TV and radio repair.

Although the current generation of youth was told that education was their ticket into the middle or upper class, the positive income effect has been modest. But the debt impact on youth has been huge, with $1.47 trillion of total student debt outstanding and the average student debt balances outstanding of $29,400.

Even more grim, the Federal Reserve recently reported that 27.3 percent for all student loans in repayment are now in default.

All of this does not bode well for the recovery of the middle class anytime soon.

 

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