Middle Class Contracted in U.S. Over 2 Decades, Study Finds

2017-04-25 10:43:03

 

Middle Class Contracted in U.S. Over 2 Decades, Study Finds

Mike McCabe’s neighbors in rural Gillespie, Ill., consider him lucky. After being out of work for a year, he landed a job in January making cardboard boxes at a nearby Georgia-Pacific plant for $19.60 an hour.

He would agree with them, were it not for the fact that his previous job in a steel mill near St. Louis paid $28 an hour. “I’ve had to rethink my whole life to make ends meet on what I’m now making,” Mr. McCabe said. “The middle class is struggling for sure, and almost anybody in my position will tell you that.”

Middle-class Americans have fared worse in many ways than their counterparts in economically advanced countries in Western Europe in recent decades, according to a study released Monday by the Pew Research Center.

What is more, as Mr. McCabe’s experience suggests, the authors of the Pew study found a broader contraction of the American middle class, even as the ranks of the poor and the rich have grown.

“Compared with the Western European experience, the adult population in the U.S. is more economically divided,” said Rakesh Kochhar, associate director for research at Pew. “It is more hollowed out in the middle. This speaks to the higher level of income inequality in the United States.”

For example, between 1991 and 2010, the proportion of adults in middle-income households fell to 59 percent from 62 percent, while it rose to 67 percent from 61 percent over the same period in Britain and to 74 percent from 72 percent in France.

Households that earned from two-thirds to double the national median income were defined as middle income in the Pew study; in the United States that translated into annual income of $35,294 to $105,881, after taxes, in 2010.

A shrinking middle class is not necessarily cause for alarm, if the reason for the contraction is that more people are moving up the income ladder, said David Autor, a professor of economics at the Massachusetts Institute of Technology.

The proportion at the top did rise, but so did the proportion at the bottom, rising to 26 percent from 25 percent. That is much more worrisome, said Mr. Autor, who was not involved with the Pew study.

Moreover, the middle-income group was smaller — and the groups at either extreme larger — in the United States than in any of the 11 Western European countries studied.

And incomes in the middle rose faster in Europe than they did in the United States, according to Pew. Median incomes in the middle tier grew by 9 percent in the United States between 1991 and 2010, compared with a 25 percent gain in Denmark and a 35 percent increase in Britain.

The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France.

And while inequality may be widening, the proportion of households in the upper-income strata rose to 15 percent from 13 percent.

“Financially, the U.S. remains well ahead of the countries in Europe,” Mr. Kochhar said. “The difference is how incomes have evolved, and they are catching up.”

Although the cutoff of the study, 2010, may have highlighted weak income gains because it was in the immediate aftermath of the Great Recession, he said that was not enough to alter the study’s findings.

“It’s a clear trend that the middle class in the U.S. is shrinking and not keeping up financially with the upper-income group,” he said. “There is an aura of redistribution of income from middle income to upper income.”

The study acknowledges that “middle class” can connote more than just income — like a college education, white-collar work, economic security, homeownership or even self-image — but for the purposes of the study, it was defined by income.

Whether in Europe or the United States, technological change and globalization mean that people who can adapt and learn new skills can reap bigger rewards, Mr. Kochhar said.

Since founding LaSalle Network, a staffing company based in Chicago, with two employees nearly 20 years ago, Tom Gimbel has watched revenues grow to a projected $70 million this year.

“I know a lot of people who have done much better in the last five years,” he said. “I have people working for me who made $35,000 to $60,000 a few years ago and are earning $60,000 to $150,000 now.”

Mr. Gimbel, who grew up in a comfortable Chicago suburb, has seen his own fortunes improve as well. “We didn’t want for anything, but my dad wasn’t rolling in money,” he said. “I’ve succeeded beyond where my parents were.”

On both sides of the Atlantic, the pressure on the middle class is translating into frustration with the political establishment and distrust of the elites.

Like his father and uncle, Mr. McCabe worked at the U.S. Steel mill in Granite City, Ill. But after the plant was idled in late 2015, he looked for a new job rather than waiting to be called back if the economy improved.

As a result, Mr. McCabe voted for Donald J. Trump in the presidential election last year, even though he grew up in what he calls a staunchly Democratic home. “My dad is probably rolling over in his grave,” he said.

“But I liked Trump’s message that he was going to help the middle class and get the jobs back,” Mr. McCabe said. “I was amazed that he won, and sat up all night watching.”

“You can only wait so long, and your unemployment runs out and you run out of choices,” he added. “I’m divorced with no kids. For people with kids, I can only imagine how tough they got it.”

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