The US Middle Class Is Changing — What Are the Biggest Obstacles It’s Facing?

In recent years, there’s been growing debate over the conditions of the U.S. middle class. What defines it today? How has it changed over the years? And perhaps, most urgently, why does it appear to be shrinking? And beyond that, where are they going?

Read: How To Know If You’re Truly Middle Class (Hint: It’s More Than Just Your Income)
Find Out More: What Income Level Is Considered Middle Class in Your State?

First, let’s flip back and look at what propelled this widening understanding that the middle class is shrinking.

The Great Recession Fueled the Conversation

“Ten years ago, during and in the aftermath of the 2007-2008 financial crisis, the middle class was hit particularly hard,” said Peter C. Earle, economist at the American Institute for Economic Research. “That made the view that the middle class was disappearing more widespread — especially among members of the middle class themselves.”

As the economy recovered, middle-class individuals and families began to see financial stabilization, Earle said. But the pandemic changed all that.

Make Your Money Work for You

“Pandemic policies sent many back to square one,” Earle said.

Explore: Here’s How Much You Need To Earn To Be ‘Rich’ in 23 Major Countries Around the World
See: States Where It’s Easiest To Go From Middle Class to Upper Class

The Middle Class Isn’t Defined by Income Alone

Earle clarified that when we talk about the middle class, we’re not just talking about middle-income households, but “a social grouping beyond income levels.”

When we refer to the middle class, we’re also referring to a set of ideals, beliefs and understandings. One of those understandings when discussing the middle class has long been that they have a certain degree of financial security — a qualifier that is now in doubt, Earle said.

“Whether that means that there is a new definition of middle class, or that those individuals are no longer middle class, is an open question,” Earle said.

Cost of Living, Inflation and Other Factors Drive the Shrinkage

As for what specifically is causing the middle class to shrink today — versus 10 years ago — there are a few contributing factors.

Make Your Money Work for You

“The cost of living is rising and hitting middle class households where their budgets are already stretched (food costs, insurance, college education, energy and housing),” said Sarah Marsden Greene, a lecturer in economics at Rensselaer Polytechnic Institute. “This drives up the range of income that would classify a household as middle class. Hence, there are many households that 10 years ago would have been solidly middle class but now they have fallen to less than that.”

In addition, prices are rising faster than wages and salaries, and the rise in prices is “long run and sustained,” Greene said.

“This can be said, even though until recently the inflation rate has been on the low side, because with stagnating wages, even a small inflation rate will hurt the middle class,” Greene said. “The cause can be said to be a few things. One, increasingly globalized markets for goods and services means production can flow to where it costs the least, which often means outside of the USA. Second, the work that remains requires more skills and education, raising costs and increasing college debt for middle class people. Third, government policy can hurt middle class, particularly in terms of the income tax policies, which reduce disposable income for a class of Americans already struggling to maintain their standard of living.”

Helpful: Budgeting Tips To Stretch Your Middle-Class Income

Richer or Poorer? There’s No One Answer

All of these causes can be cited as “leading to income inequality and the fall of the purchasing power of the middle and low income classes, while the high income classes enjoy greater prosperity,” Greene said. “Now, we have the challenges presented by COVID and climate change that create greater uncertainty and middle class households already have little cushion in their savings to deal with uncertainty.”

Economists such as Earle, see things differently, if not almost antipodally.

“The [middle class] are most[ly] moving up the scale, closer to the upper class — but that does not mean that there is or should be a Porsche in the driveway,” Earle said. “Higher earnings met by higher prices (decreasing purchasing power) acts as an invisible tax, and while inflation has mostly been low for some years in some goods and services it has been rising (food and energy in particular).”

Try: 50 Easy Things You Should Do To Save Money

Earle added that it’s almost received wisdom that the middle class is doing poorly, regardless of what actually occurs in the economy.

“I can’t remember the last time, if ever, someone came up to me and said, ‘Wow, the middle class did really well last year!'” Earle said. “Although at times that was certainly the case. Understandably, every person wants more than they have, but that sometimes leads to the conclusion that not achieving a particular standard of living is necessarily a move downward. It isn’t.”

But again, Greene argues that the majority of the once hearty middle class is in fact, slumping down the economic pole.

“Most of [the middle class] are becoming poorer because the purchasing power of their income has been reduced by the rising costs of living,” Greene said. “There is nowhere to go but down when basic necessities such as food, energy and healthcare costs go up.”

More From GOBankingRates

Last updated: Nov. 2, 2021 

About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.