Economic squeeze means middle class is no longer a majority

WASHINGTON – The nation's middle class, long a pillar of the American economy, has shrunk to the point where it no longer constitutes the majority of the adult population, according to a new major study.

Rapid growth of upper-income households, coupled with an increase in less educated, low earners, has driven the decline of the middle-income population to a hair below 50 percent of the total this year, the Pew Research Center reported Wednesday. In 1971, the middle class accounted for 61 percent of the population, and it has been declining steadily ever since.

The tipping point appears to have occurred in the last couple of years of the recovery from the Great Recession as the economy has continued to reward the highly educated, well-to-do investors and the technically skilled.

The report puts in sharp relief the nation's increasing income divide — expected to be a central issue in the 2016 election — and highlights how various economic and demographic forces have eroded long-held American ideals about a strong, majority middle class.

Many analysts and policymakers regard the continued hollowing of middle class as worrisome for economic and social stability. Middle-income households have been the bedrock of consumer spending, and many liberals in particular view the declining middle as part of a troubling trend of skewed income gains among the nation's richest families.

The Pew research found that the shares of upper-income and lower-income households grew in recent years as the middle shrank — with the higher-income tier growing more. In that sense, the nonpartisan group said, "the shift represents economic progress."

Pew defined middle class as households earning between two-thirds and twice the overall median income, after adjusting for household size. A family of three, for example, would be considered middle income if its total annual income ranged from $42,000 to $126,000. Pew analyzed data from the Census Bureau and the Labor Department, as well as the Federal Reserve.

A Gallup survey this spring showed that just 51 percent of U.S. adults considered themselves middle or upper middle class, with 48 percent saying they are part of the lower or working class. As recently as 2008, 63 percent of those polled by Gallup said they were middle class.

This change in self-identification — and the reality of the shift documented by Pew — carries political ramifications as the state of the middle class is a major focus of the economic debate in the presidential campaigns, with candidates, in time-honored fashion, invoking the middle class in their speeches and policy statements. President Obama has dubbed his programs as "middle-class economics."

Patrick Egan, a politics professor at New York University, says the Pew findings and the Gallup surveys suggest that the public may be more open to policies of redistribution.

"Americans are always kind of reluctant to embrace open class warfare," Egan said. But "if more Americans are under the idea of placing themselves at the bottom, you'll see politicians follow," he said.

Although the median incomes of upper, lower and middle tiers have all lost ground since 2000, primarily because of the Great Recession in late 2007 to mid-2009, upper-income households saw the smallest decline through 2014, the Pew study found.

Pew's findings add to strong evidence that the middle class has been thinned partly by a decline in manufacturing due to competition from imports as well as a broader polarization of jobs that has favored the most educated and technically skilled workers.

But the declining middle also reflects demographic shifts: the arrival of more low-skilled immigrants, for example, which can be seen in the overall slippage of Latinos in the income ladder since 1971. By race, black adults made the biggest strides in income status from 1971 to 2015, although they are significantly less likely to be middle income compared with adults overall.

At the same time, the increase of women in the workforce since the early 1970s has tended to boost household incomes, as has higher college education enrollment. And of course, strong gains from stocks and high-tech ventures have fueled incomes for some.

As of this year, 9 percent of Americans are now in what Pew called the highest-income category — up from 4 percent in 1971 and 5 percent in 1991. A household with three people had to have an income of more than $188,000 last year to be in this highest bracket.

In contrast, the share of American adults in the very lowest income category — a three-person household making less than $31,000 — rose to 20 percent of the U.S. adult population this year, from 16 percent in 1971.

Whether this trend continues will depend in large part on how household structures evolve. Soaring numbers of single-parent households since the early 1970s, for example, have increased those at the bottom of the spectrum.

Also, trends in marriage rates, immigration, college education and the labor force participation of lower-skilled men will all have a bearing on the future of the middle class, said Harry Holzer, an economist and public policy professor at Georgetown University.