Conventional Wisdom
The middle class has not benefited from the recent growth in the economy.
Facts
1. Real after-tax per capita personal income rose by 12.1%--an average of more than $3,700 per person during the past seven years.12
2. Real wages (pre-tax) have risen by 3.6 percent.13
3. Non-salaried wages increased more than salaried earnings (+24.0%. Vs +22.1%) over the past seven years.14
4. The unemployment rate has averaged 5.2% since 2000, below the averages for the past three decades.
5. The U.S. economy added more than 8.3 million jobs from August 2003 through the end of 2007.
The most important way that middle income Americans benefit from economic strength is by jobs being available if they want them. Low unemployment trumps income growth. Clearly, with nearly record low unemployment, this requirement has been met.
What do we know about "middle-class income?" This simple question seems like it should be easy to answer, but it is the subject of many widely reported fallacies. When you see claims that household income has been stagnant, this is because the average household size has been declining. The fact that the average real household income rose by only 6 percent from 1969 to 1996 sounds like stagnation to most. But in the same time real income per person rose by 51%.15
When you see claims that the American middle class is vanishing, to a degree this is true but the statement is designed for its political spin not to enlighten people. The middle class is shrinking because many in the range that would have been considered middle class have moved up to a higher income level, leaving fewer in the lower income range.
Further, true wage advances tend to be understated because they do not include the value of health insurance and retirement benefits which have been increasing rapidly, and because the number of part-timers has been increasing and their wages are lumped in with the totals.16 For an excellent review of these and other fallacies about middle class income and income stagnation, see Thomas Sowell's Economic Facts and Fallacies.
The truth is, most people are making more money today and they're better off than ever before. Real median household income in the United States reached an all-time high of $48,200 in 2006, median household family income, which averages in multi income families, is up to $60,000 and for most Americans the trend continues upward. While definitions of poverty rate tend to be somewhat specious, the nation's official poverty rate declined for the first time this decade, from 12.6% in 2005 to 12.3% in 2006.17
Assessment
Next time you hear someone say its harder for the average family to make ends meet than it was thirty years ago, ask them how they're doing with their flat panel TV, 96 cable channels, personal computer and high speed internet, iPod, and air conditioning, all of which are good examples of the many, many things that have been added to the inventory of a typical household over and above what was there thirty years ago. The claim is emotive and cries out to the ever increasing wealth of the American Dream but it does not reflect economic reality.
Sources:
[12] This is from www.whitehouse.gov - we should try and
get this from the primary source.
[13] ditto
[14] US Dept of Labor - Bureau
of Labor Statistics - Tables B-3 and 1 - April 2008 vs April 2001. Note, this
is not inflation adjusted like the figure immediately above it.
[15] Thomas Sowell,
Economic Facts and Fallacies, p 125.
[16] Ibid. p130.
[17]
Sirs, I think you must not belong to the middle class. The luxury items you speak of are not in every home. In actuality, they really only belong to those in the upper middle class. We know many without cable, Apple products, internet, and flat screens. And even in the upper middle class, you’ll usually find only portions of your list. And no, our economy is not failing, but it is in a slump and the working class here in America often do not have much disposable income. With cost of gasoline rising, and a necessity to get to work (public transportation is not what it should be) more of the family budget goes there. And with the rise in gasoline, goes the rise in everything else. Eggs alone have increased in cost by 40% this year. Electric bills have doubled and tripled, regardless of energy saving measures. And in a separate issue, till the past few months when homes began foreclosing at an increased rate, basic housing costs were increasing in the double digits every year.
Tied into leases at set rates higher than the current market, mortgages that they are upside down on, and spending far more on the basics of life than they had budgeted for it is, indeed, harder for many to make ends meet than it was 10 years ago. I don’t know anyone who makes these statements about 30 years ago, as most of those I know struggling were in elementary school at the time. While your studies do show that, overall, the middle class has received increased wages over the past 12 years, this may be misleading because you are not including all the data and the period most are concerned with are the past 4-6 years rather than 12. Much of this income growth comes with hidden costs that your research does not account for, in addition to those I’ve already spoken of. Yes, the average family size has shrunk, increasing the per capita income. However, the average family has gone largely from single income to dual. This brings in costs like childcare that would not be necessary should a parent stay home. And even cheap childcare is expensive. Employers are including more benefits for healthcare and retirement. However, the cost of healthcare is increasing at a rate that is faster. Despite employers shouldering more of the bill, the employees’ premiums are still increasing. As are their co-pays. As are the number of unallowable costs within their plans. Leaving employees still with far more to pay than before. 401Ks…well, most of us would have done better to put our money in a mattress the past few years. I really think that people should write what they know, and you, sirs, may be well versed in matters of finance…but when you speak of the middle class experience, you aren’t. Statistics are a wonderful tool, but it’s easy to miss out on data sets that could potentially change your conclusions. When you add up all the cost increases and compare them to the income increases, what you end up with is a REDUCTION in the standard of living, rather than an increase.
I speak not from media indoctrination, but rather from experience. Our status has improved greatly recently, but only very recently. I will not get into the cost of living increases that have been frozen since 2003, the companies that have instituted wage decreases, and the other practices going on that are realities for many.