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