The Myth of Middle Class Stagnation

September 20, 2011

Conventional wisdom says that the middle class hasn't caught a break for at least a decade and incomes have stagnated or declined.  But new research corrects a misconception regarding middle-class income, and therefore should come as a pleasant surprise -- not just to members of the middle class, but also to pundits, journalists, and of course, politicians, says Steve Conover.

  • In the seven years from 2001-2007 (inclusive), not only did the middle class get at least its fair share of overall income growth, the income gap between the rich and the middle class actually got smaller.
  • In an apparent paradox, the same Census Bureau database that told us that median household income was essentially unchanged in 2007 versus 2000 also tells us that the middle class enjoyed a higher income growth rate than did either the overall economy or the rich -- and therefore that their income gap versus the rich had actually decreased.

The key lies in the difference between the "median household" versus the "middle class."  The median household is a single theoretical household exactly in the middle of the entire income-ranked list of U.S. households.  Conversely, the "middle class" has no official definition, but it is certainly tens of millions of households in size and presumably centered around the median household.

The Census Bureau booklet published in August 2008 was the source for the median household income statistic, but it also contained some clues that the median might not be telling us everything.

  • For example, the Gini index of income inequality, comparing 2000 versus 2007, indicated no discernable change in overall inequality.
  • A further clue was the Census Bureau's table titled "Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households," which clearly showed that the middle-income quintile (as well as the middle three quintiles -- whichever comes closer to one's preferred definition of "middle class") equaled or increased their share of aggregate income in 2007 versus 2000, while both the top quintile and the top 5 percent lost income share.
  • Indeed, the household income statistics for 2010, released this month confirm that the middle three quintiles maintained or increased their income share, while that of the top 5 percent decreased.

Source: Steve Conover, "The Myth of Middle Class Stagnation," The American, September 16, 2011.

For text:

http://www.american.com/archive/2011/september/middle-class

 

Browse more articles on Economic Issues