American Dream

A Magnified Look at the Shrinking Middle Class

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What makes someone a member of the middle class? Are people who belong to it, or who think they do, suffering from declining income and a lack of opportunity to get ahead? Distressingly, the answer to the latter question seems to be yes. Recent data from Pew Charitable Trusts reveals that the middle-income category shrunk in every state in the U.S. between 2000 and 2013. So why have middle-class incomes been receding?

Defining Middle-Class America

Defining and measuring the middle class can be tricky. Depending on where you live, you can feel part of it by earning as much as $250,000 a year—about five times the 2013 U.S. median household income of $52,250. Some sources say that it should be everyone whose incomes fall between the 25th and 75th percentiles. The Economist describes the middle class as “an income category but also a set of attitudes,” quoting commentator Shashi Tharoor in saying that this category is “more sociological than logical.”

A “reasonable amount” of discretionary income is a major characteristic of the middle class, according to The Economist. Unlike low-income individuals, members of this class do not live “hand to mouth.” Instead, economist Diana Farrell says that middle-class individuals have about a third of their income left for discretionary spending after taking care of basic necessities. That means the ability to buy major appliances or cars, save for their children’s education, and spend extra on health care.

Another major characteristic of this class is the ability to sustain discretionary income through a steady job, typically one that’s salaried and comes with benefits.

Typical Benefits No More

The 2013 numbers shouldn’t be surprising. Middle-class incomes were stagnating even before the Great Recession, and they haven’t improved much from the sputtering recovery since. A major reason for the shift in the middle-class income bracket is that various benefits historically afforded to middle-class families have become harder to attain in the 21st century, including:

  • Debt Repayment: reports that the average American household with at least one credit card is $15,000 in debt.
  • Savings Accounts: A Bankrate survey found that only a fourth of Americans have six months of income saved for emergencies, and an equal number have no savings at all. Twenty percent have no retirement savings, and many more plan to depend entirely on Social Security, which will likely not be sufficient.
  • Medical and Dental Care: Feeding America reports that two thirds of households have had to choose between paying for food and medical or dental care, and 31 percent face that choice every month.
  • Vacation Time: Paying for a vacation often requires sacrificing something else.

While retrenchment on the part of the middle class offers clear warnings for every economic sector, the flip side of the question is this: What will it take to restore the confidence of middle-income Americans?

If the past is any indicator, the government has a role to play, but the collective decisions of the productive sectors of the economy will likely make the most difference. Increasing the number of steady jobs is central, as well as keeping the revenue made in each state within its borders. But with a careful mix of tax adjustments and business incentives, the middle-class Americans could, once again, see positive growth and the middle-class benefits of yesteryear.