Thursday, December 10, 2015

Middle-Class Shrunk MORE than Pew Claims

Earlier this year James Kwak wrote: "Supposedly President Obama is making middle-class economics one of the key themes of his final two years in office. I don’t really know what this is supposed to mean in a country where people making ten times the median household income call themselves middle-class and there are tens of millions of people in poverty."

According to the St. Louis Federal Reserve, real weekly median earnings are currently $377 a week — or $19,604 a year. This is down from 36 years ago when it was $408 a week — or $21,216 a year. "Median" means, half earned more and half earned less — and currently the real "middle" is $377 a week — or $19,604 a year for full-time male workers over 16 years old.

Real median weekly earnings

A new report by Pew Research defines middle-class as "about $42,000 to $126,000 annually in 2014 dollars for a household of three. Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971."

Not so. Pew uses a very liberal definition of  "middle-class" (only 5% of all wage earners make $126,000 a year or more) — and Pew's definition of "middle-class" is also too widely defined, because a household of three could be many things: three unrelated adults who all have jobs, or a married couple with one child where only the husband works, or a trust fund baby supporting two friends, or three retirees relying on nothing but Social Security — and many other various combinations of what household income could consist of.

So instead, let's look at the actual Social Security wage data for earnings reported on W-4 forms for payroll taxes for people who work — which shows that 50% of wage earners make $28,500 a year — and a dual-household income would equal about what Sentier Research reports as the median household income of $56,670 a year.

It should also be noted that Pew defines "middle-class households of three" with incomes up to $126,000 annually — but as a wage, that puts a wage earner in the top 5% of all wage earners — and as a "household income", is over DOUBLE what the "median household" actually is.

Pew reports (paraphrased):

For more than 40 years the American middle-class held majority status in the U.S. population. No more. The middle-class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point. In 1971, Pew said, the middle class represented 61 percent of the population; today it represents 50 percent. Where did those 11 percentage points go?

If by using Pew's definition for what might be considered middle-class, (but using Social Security data), out of 155,772,341 wage earners in the work force, there are 41,386,660 earning between $40,000 and $125,000 a year — which is 26.5% — not 50% as Pew says. And again, let's be real: $125,000 is much more than a "middle-class" income in most parts of the country, even for a household of three.

And if by using the New York Times' definition for what might be considered middle-class (those earning more that $35,000 a year, but less than $100,000), then according to Social Security data for wage earners, then 34.5% earn a middle-class wage.

58.5 percent earn $35,000 or less (50% earn $28,500 or less — the "median" wage for all wage earners.)
34.5 percent earn between $35,000 and $100,000
6.9 percent earn $100,000 or more

In actuality, based on wage data from Social Security, only 20% earn a "middle-class" wage — even if you doubled that to account for a dual-income household for a "median household income", then still, only 40% would live in a "middle-class" household (still less than what Pew says is 50%).

Pew also says: "The good news is that nearly twice as many moved up (7 percent) as moved down (4 percent)." So that wouldn't be true either because Pew is saying $126,000 a year is "middle-class" — so it's probably just the opposite: 7 moved down and 4 moved up, like the animation I created below shows — and gives you a better visual of the real American middle-class squeeze.

The REAL middle-class squeeze.

The image above shows how the U.S. economy has transitioned from a high-wage manufacturing union economy (since offshoring) to a low-wage service and retail non-union economy. The higher wage jobs have grown (as did the number of millionaires and billionaires), but proportionately, the number of lower paying jobs have far out-numbered those on the opposite side of the income scale (not to mention, a greater number of people dropping out of the labor force altogether).

Pew also says: "Since 1971 the most upward-traveling migrants out of the middle-class were the elderly, followed by married people with no kids at home and African-Americans." This could make since, as the elderly will be drawing on traditional pensions in conjunction to their Social Security when retiring; but most traditional pensions are disappearing and will be mostly gone when the last of the baby boomers die off. And married people without children usually represent a dual-income household.

Pew also says: "The most downward-traveling were people who didn't go to college, followed by high-school dropouts and people who put in some time at a four-year college or received a two-year associate's degree." This makes sense too, as people with college degrees are now taking jobs that don't require college degrees and are displacing high school grads and dropouts.

A definition of "middle-class" in the 1950s used to be when a father (with only a high school education) went to work at the assembly line in the auto plant and earned enough money to pay a mortgage on a modest house and car payment by only working 40 hours a week while supporting his stay-at-home wife who was raising two kids. (Now look at Detroit.)

Now most are stuck in the two-income trap, as Senator Elizabeth Warren explains in her book: The Two-Income Trap: Why Middle-Class Parents are Going Broke

What's of most concern to Americans is NOT "terrorism" or ISIS. According to Gallop polls, it's the economy — and why Senator Bernie Sanders resents the mainstream media for trying to distract us from the the issues with their micro-reporting about terrorism 24/7. They actually accuse Sanders of completely ignoring the problem of ISIS, which is entirely untrue — he has spoken in-depth many times on the subject, on many occasions, in different venues.)

The Census Bureau just released its latest update to the American Community Survey, publishing a trove of recent data on everything from education levels to economic indicators for the United States in 3,142 counties. The new numbers offer evidence of the lasting effects of the Great Recession and the ongoing financial stagnation faced by most Americans: In counties across the country, poverty rates are up and incomes are down, while rents are rising and home ownership is dropping. (The links below are from the recent maps from Census.Gov)

* Despite workers doing more, their wages haven't kept up in proportion, because most the gains for the past 40 years have went to the top 1% — but mostly to the top 0.01%
Wages vs productivity

My Related Posts:

* NOTE: The use of a "median" wage is a far better measure than using the "average" wage (like the Department of Labor likes to use) — because the average wages of 3 people could be one millionaire and two minimum wage earners, which can greatly skew the average and make it appear as though most of us are earning a lot more than we really are.

9 comments:

  1. BM: Pew also says: "The most downward-traveling were people who didn't go to college, followed by high-school dropouts and people who put in some time at a four-year college or received a two-year associate's degree." This makes sense too, as people with college degrees are now taking jobs that don't require college degrees and are displacing high school grads and dropouts.

    ME: 100%, based on my own experiences. Another reason that non-college high-school grads (especially older ones) lose out on STEM jobs (IOW, leave the work force) is that without the college education they can no longer compete with those who do have one -- STEM, itself, has become even more complex, and investor greed has pushed businesses of all sizes to reduce their employee footprint, often splitting the workload of three jobs between two workers. Not co-incidentally, this is also a reason for the upsurge in highly-trained workers opting to take early Social Security retirement benefits (despite the 30% penalty "for early withdrawal").

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    1. In a piece for Gawker titled "The Middle Class Is Now a Minority", Hamilton Nolan responded to the Pew report with an irreverent eulogy:

      "The Middle Class, a popular figure in American folklore, died this week after a long battle with capitalism. Its passing has been expected since the recent death of its partner, The American Dream."

      http://gawker.com/the-middle-class-is-now-a-minority-1747290888

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  2. thank you Bud for your cogent analysis of the Pew report. It's is just so obvious to even the non-economist that the middle class is disappearing just by observing the economic success of friends and relatives that you don't need to be a PHd in economics to come to that conclusion. I've seen right wing websites proclaim that the middle class is getting smaller due to the fact that more middle class people are becoming rich! Any rational american can see this is an out and out lie.

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    1. Thanks Allen ... just callin' it as I see it.

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  3. The Pew report is a sham. The so-called "tipping point" for the so-called "middle-class" passed decades ago — hence, Occupy Wall Street, Thomas Piketty and Senator Bernie Sanders. I no longer trust Pew Research. Michael Dimock (Pew president) turned out to be a shill for the top 1%.

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  4. Dean Baker agrees with me, sort of, I guess ;)

    Dan Balz and the Pew Research Center Discover Wage Stagnation

    http://cepr.net/blogs/beat-the-press/dan-balz-and-the-pew-research-center-discover-wage-stagnation

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  5. SEIU's Fight for $15 couldn't get McDonald's to the bargaining table in 2015, but it won a $15 hourly wage minimum in fourteen states and cities. But even so, SEUI enodorsed Hillary Clinton (who suggested $12 an hour) rather than Bernie Sanders (who asked for $15 an hour). Tech companies like Facebook and Google also instituted a $15 wage requirement for employees of their contractors.

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  6. I think the $15 minimum wage is a terrible idea. Why? Because many professionals already work for less. There is, in fact, a 'learned profession' exclusion from the Fair Labor Standards Act. Even if the professionals made more, as most do, you have to wonder if that extra ten years in school and mountains of debt was worth the additional $8 per hour. What incentive is there to better oneself and improve one's prospects through education when there's a $15 minimum wage?

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    1. YOU try living on less than $15 a hour in 2016. I ran a video store in the late 1980's and paid the counter help $9 a hour back then. In 1973 I made $7.50 as a welder. Surely $15 a hour in 2016 is not too much.

      "What incentive is there to better oneself and improve one's prospects through education"? People will go to college to make $20 or $50 or $100 an hour. A person usually tries to maximize their earnings the same way businesses try to maximize their profits. Paying someone $15 an hour isn't going to make anyone fat and lazy.

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