America Losing Middle Class as Rich and Poor Divide Widens

Posted in Economy , Financial News • November 16, 2011

A study to be released today is revealing what many already know: America’s middle class is shrinking, turning the nation into a two-tiered society of rich and poor. The middle income population has declined significantly since 1970, according to a study conducted by Stanford University. This income gap is not likely to change in the near future.

Middle Income Families Dropped by 21 Percent

Using Census data to examine family income at the neighborhood level in the country’s 117 biggest metropolitan areas, Stanford University discovered the changed map of prosperity in the U.S. over the past four decades.

In 2007, which was the last year captured by the data, 44 percent of families lived in neighborhoods the study defined as middle income. This is down significantly from 65 percent of middle class families in 1970. It was also discovered that a third of American families now live in areas of either affluence or poverty, a figure that is up from 15 percent in 1970.

To determine neighborhoods, the study created six income categories. Poor neighborhoods were considered those with median family incomes that are 67 percent or less of those of a given metropolitan area. Rich neighborhoods have median incomes of 150 percent or more, with middle income neighborhoods falling in the median income category between 80 percent and 125 percent.

Why the Middle Class is Shrinking

In a time when Americans are fighting for economic equality through movements like Occupy Wall Street, many wonder why the gap is widening between rich and poor.

A study released in October by the Congressional Budget Office (CBO) found that between 1979 and 2007, the top 1 percent of earners experienced income growth of 275 percent while middle income earners only saw 40 percent in growth over the same period.

One reason for the shift in income tiers is the reduction of manufacturing and other middle class jobs that have pushed middle income earners to lower rungs on the ladder. At the same time, the report found that wealthy individuals have received a bigger portion of the income pie, as noted in the CBO study.

Gentrification is also to blame, as more rich are moving together in new exurbs where lower and middle income families cannot afford to live. This pattern was noticed in 90 percent of large and medium-sized metropolitan areas, including Detroit, Oklahoma City, Toledo, Ohio and Greensboro, N.C.

Also, the income segregation leads some children to have reduced access to quality education, and according to the report, have a lower likelihood of completing college, thus continuing the cycle of lower income earnings.

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