The middle class has long been considered the backbone of American society and economy. However, there are ongoing debates about whether the middle class still exists in its traditional form. Income inequality has increased significantly over the past few decades, making it more difficult to define the boundaries of the middle class. Additionally, the cost of basics like healthcare, housing, and education have risen faster than incomes, putting economic pressure on many families. This article will examine the evidence around the shrinking, stagnating, or shifting nature of the American middle class.
Defining the middle class
There is no universal definition of the middle class, which makes it challenging to track over time. A traditional definition refers to households with incomes between two-thirds and double the median household income. By this measure, Pew Research Center defines middle class households in the U.S. today as having incomes between $48,500 and $145,500 for a family of three. Using this definition, the share of American adults living in middle-income households has decreased from 61% in 1971 to 50% in 2019.
Another way to define the middle class is based on lifestyle and financial security. Factors like owning a home, ability to save for retirement and emergencies, affordability of healthcare and education, job stability and disposable income indicate middle class standing. By these measures, many households earning even above median incomes struggle to maintain a middle class lifestyle.
The shrinkage of middle income tiers
Over the last five decades, the share of American adults in the upper and lower income tiers has grown, while the share in the middle income tiers has declined. This “hollowing out” of the middle class suggests decreasing economic stability for a significant segment of the population.
According to Pew data, the share of adults in lower-income households grew from 25% in 1971 to 29% in 2019. The share in upper-income households also rose from 14% to 20%. Meanwhile, the share of middle-income households fell from 61% to 50%.
| Income tier | Share of adults 1971 | Share of adults 2019 |
|---|---|---|
| Upper income | 14% | 20% |
| Middle income | 61% | 50% |
| Lower income | 25% | 29% |
The upward and downward movement of segments of the population indicates that the middle class is not necessarily thriving. Fewer adults today occupy this traditionally secure, comfortable tier than they did several decades ago.
Stagnating incomes
Another concern around the middle class is stagnating incomes. After adjusting for inflation, today’s average hourly wage has roughly the same purchasing power as it did 40 years ago. However, productivity has risen steadily, which means workers are producing more value but not receiving higher pay to match.
According to the Economic Policy Institute, between 1979 and 2020, productivity grew 70% faster than hourly compensation for the typical American worker. Had wages kept pace with productivity, the average worker today would be earning $20 more per hour.
While income levels have stagnated, the costs of big-ticket necessities like housing, healthcare, childcare and education have risen significantly, taking larger bites out of household budgets. College tuition and fees have more than doubled since the 1980s after adjusting for inflation. And housing prices have risen faster than incomes in 80% of U.S. markets since the Great Recession.
These economic trends squeeze traditionally middle class Americans and make it more difficult to maintain a middle class lifestyle.
The hollowing of middle wage jobs
Another factor in the shifting middle class is changes in the job market. Research from the National Employment Law Project found that mid-wage occupations made up 60% of jobs lost during the Great Recession, but only 27% of jobs gained during the recovery. Higher- and lower-wage jobs grew much more quickly.
Ongoing automation and offshoring of manufacturing and clerical roles have hollowed out many reliably middle class occupations. At the same time, industries like healthcare, professional services and technology have seen robust job growth, but with an increasing divide between high-skill, high-wage work and lower-paid support roles.
People who lose mid-level jobs may end up taking lower-paying positions just to get by. The loss of middle wage jobs makes it tougher to maintain a foothold in the middle class.
Geographic differences
Trends around the middle class also differ significantly based on geography and local economic conditions. From 2000 to 2014, more than 200 counties saw at least 20% of their middle class households fall into the lower tier. At the same time, other regions have retained more traditionally middle class jobs and earnings levels.
The fate of the middle class varies across states and metro regions based on factors like predominant industries, union strength, housing costs, and inequality levels. Certain regions with booming industries, like energy and tech hubs, have enjoyed larger middle class gains.
This geographic unevenness reflects a broader ongoing bifurcation in economic opportunity between thriving metropolitan centers and struggling rural regions or Rust Belt towns.
Disappearing wealth
Downward income trends and rising costs have also impacted the wealth holdings of middle income Americans. Wealth indicates longer-term economic security by accounting for total accumulated assets, including the value of a home, retirement funds, savings, and other property and investments.
Research shows that, after adjusting for inflation, the median wealth for middle-income households declined by 35% from 1983 to 2016. Upper income wealth rose over the same period, while lower income households held roughly the same modest levels. This erosion of middle class wealth leaves families more economically vulnerable.
Feeling stretched thin
Even many upper income earners feel economically unstable and report living paycheck to paycheck. A recent survey found that 50% of households earning between $100,000 and $150,000 felt some level of financial insecurity and worry about savings levels, debt, or the cost of living outpacing earnings.
Views on what constitutes middle class life have also shifted. Where once owning a home signaled middle class membership, now nearly 40% of homeowners still don’t consider themselves middle class. Benchmarking middle class status based on consumption, lifestyle, and financial security reveals that true membership has constricted.
The outlook
Projections on the future of the middle class reflect some optimism but also ongoing concerns. Pew projects the share of adults in the middle tier will rebound slightly to 54% by 2025. However, average household incomes are only expected to make modest gains. And risks like automation, inequality, rising costs, and the next recession still loom.
Policies aimed at expanding skills training, making college more affordable, containing healthcare costs, and enabling more balanced geographic economic growth could strengthen the middle. However, reversing decades-long trends around incomes and costs remains an immense challenge.
Conclusion
Evidence shows America’s middle class is getting smaller, poorer, and more anxious about its economic standing. Stagnating wages coupled with rising costs for basics like housing, healthcare, and education have made it harder for many to maintain a traditionally middle class lifestyle. Significant downward mobility and the hollowing of mid-wage jobs have shrunk the middle’s share of the population. And location often determines whether the middle class is thriving or faltering. While the middle class may not vanish entirely, its once stable and prosperous contours have blurred over recent decades.
