We hear it all the time. The middle class is shrinking. Wages have been stagnant for decades. Families are struggling with financial insecurity.

However, what exactly is the middle class? Who is in it and who is not? Is it shrinking? What about you, of which income class are you a part? It turns out, these questions are difficult to answer. So we are going to start with some data.

What Does the Data Say? 

The majority of the U.S. population (52%) are in the middle class, according to a recent report (September 2018) from the Pew Research Center. That is a slight increase from 2015 when the previous Pew Report found that the middle class made up slightly less than 50% of the U.S. population. However, the narrow majority found in 2018 still reflects a longer-term trend of a shrinking middle class compared to the 1970s, 1980s, 1990s, and the oughts.

Key Takeaways

  • The middle class constitutes a slim majority of the U.S. population (52%), but that is still less than it has been in nearly half a century.
  • The share of income captured by the middle class has fallen from 60% in 1970 to 43% in 2014.
  • The middle class is shrinking due to an increase in population at the extreme bottom and top of the economic spectrum.

Pew's previous report from 2015 showed that (as noted above) for the first time since at least the 1960s, the majority of Americans were not in the middle class. In 2015, slightly fewer than 50% of American adults lived in middle-income households (on the chart below, it rounded up to 50%)—down from 54% in 2001, 59% in 1981 and 61% in 1971. It also found that the share of income going to middle-income households fell from 62% in 1970 to 43% in 2014. The middle class has been both shrinking in population share and seeing its cut of the income pie drop.

Lowest and Highest Bracket Growth

The most interesting part of the 2015 Pew report, though, was its finding that the middle class is shrinking not only because more people are poor, but also because more people are rich. The percentage of lowest-income earners—those earning less than two-thirds of the median income—had grown four percentage points, from 16% to 20% of the population. Over that same period, though, the percentage of Americans in the very highest-income households also rose by 5 points since 1971, taking that group from 4% to 9% of the population.

The shrinking middle class is less a decline in how well the population as a whole is doing. Also, there is more polarization of where growth is coming, at the extreme bottom and top of the economic spectrum. So, it is not just that people are falling out of the middle class and into the lower class, they are also rising into the upper class, albeit in smaller numbers.

Demographic Changes

Also, note that the state of the U.S. economy is changing with—and because of—demographic changes in American society. On average, the U.S. population has grown older. This aging makes a big difference to the median income because retirees typically live off savings and generate little income. The country is also significantly more diverse than it was in the 1970s. Increases in the number of immigrants, for example, push down median incomes because immigrants, on average, will earn make less money.

As of September 2018, though, Pew reported that 52% of American adults were in the middle class, according to 2016 income figures. There were 19% in the upper class and 29% in the lower class. According to Pew, the data suggest that the middle class has stabilized in size.

See the chart from the report below, for these later figures on how the class composition has changed since the 1970s. 

Who is Losing Ground?

However, the data also suggest that middle-class families continue to lose financial ground to upper-income families. While the median income of the upper class increased 9% between 2010 and 2016, the median income of the middle and lower classes increased by about 6% over the same period.

If we take a longer view, say, from 2000 to 2016, we see that only the income of the upper class has recovered from the previous two economic recessions. The upper-class incomes were the only ones to rise over those 16 years. 

This segmented rise has only contributed to a trend that has been ongoing since the 1970s of the divergence of the upper class from the middle and lower classes. In another piece, Pew reported that the wealth gaps between upper-income families and middle- and lower-income families were at the highest levels ever recorded.

The 2018 piece from Pew reported that, in 2016, the median income for the upper-income class was $187,872. While for the middle class, it was $78,442, and for the lower class, it was $25,624 (in 2016 dollars; figures reflect a three-person household).

The Top 1% 

When we look at the top 1%, these trends are only exaggerated. According to a 2015 report from the Economic Policy Institute, in the United States, the top 1% of wage earners take home 21% of U.S. income. You can see this as you look at the chart from the report below. These incomes shares are near historical levels for the 1%. 

According to the same report, the average income of the 1% in 2015 was $1,316,985. To even qualify as a member of the 1%, one had to make $421,926. (That is more than double Pew's 2016 median upper-income class income of $187,872.)

The Top 1% of wage earners in the U.S. capture 21% of U.S. income.

What Class Am I In? 

So, the obvious follow-up question is; Where does that leave me? Into which class do I fall? 

Income data released by the U.S. Census Bureau shows that 2017 median household income was the highest on record at $61,372. Pew defines the middle class as those earning between two-thirds and double the median household income. This Pew classification means that the category of middle-income is made up of people making somewhere between $40,500 and $122,000.

Those making less than $39,500 make up the lower-income bracket, while those making more than $118,000 make up the upper-income bracket. Easy, right? Just take your household income and see where you fit, given these numbers. 

Location Matters

The problem is that your $61,372 probably does not buy you the same kind of life as your cousin’s $61,372 in another part of the country. The lives of families making the median income look very different, given the vastly different cost-of-living levels across the U.S.

This lived experience can make it difficult to determine your income-class status. In a report for the Urban Institute entitled “The Growing Size and Incomes of the Upper Middle Class,” nonresident fellow Stephen Rose writes that;

Because people tend to live in communities with similar incomes, they view themselves as being near the middle because their neighbors’ circumstances are similar to their own even if their incomes are significantly below or above the U.S. median.

People, in the aggregate, tend to live, work, and socialize with people of similar income levels. For this reason, we often do not have accurate reference points that would help us gauge our actual class status. 

Take a look at this map to get a sense of the different levels of wealth found in different areas of the country (data from 2012 Census).

Where Do You Stand?

If you want to know exactly how you fit into the income-class matrix, the Pew Research Center has a recently updated income calculator. You can break down your class status first by state, metropolitan area, income before taxes and members of the household, then by education level, age, race, and marital status. 

According to the calculator, a before-tax salary of $45,000, for a three-person household, in Jackson, Tenn., puts you squarely in the middle class along with 50% of adults in Jackson. However, that same salary in the same household in the New York City metro area puts you in the lower class, along with 31% of adults in the area. State and city taxes vary, access to healthcare varies, city living is expensive, and children are expensive. All of these factors can contribute to what class you feel you are in, regardless of what national statistics say.

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What's Your Income Class?

Three New Ways to Look at Class in America

So, it turns out that lower class, middle class, and upper class are tricky terms to box in. The Pew income calculator is a good start for learning where your income puts you, given where you live and some background factors. However, the class is about more than just how much money you make. Before we leave the topic, it is worth taking some time to think about how other considerations factor into who and where you are. 

Social and Cultural Capital

Start with social and cultural capital, a concept debuted in 1986 by French sociologist and public intellectual Pierre Bourdieu. His essay "The Forms of Capital" outlines how different forms of capital shape class. He said that in addition to economic capital, there is social and cultural capital.

Social capital is your connections. It is whom you know, whom you socialize with, and whom is in your circle. It is group membership, according to Bourdieu. If you have ever heard someone say, "it's not what you know, it's who you know," you are familiar with the idea of social capital.

Cultural capital is a little less concrete, but it is essentially someone's cultural literacy. This cultural capital includes education level, skills, cultural knowledge and taste, ways of behaving, speaking, and dressing. It's the way that you communicate, through your behavior, that you are of particular social status. 

When we talk about class, it's important to remember that it's not just a matter of income, or economic capital, even when you account for the cost of living and the lived experience. This additional influence is because there are other forms of money. Social and cultural capital offers different kinds of currency and a slightly different kind of class status. It's also important to note that having one of these forms of capital makes it much easier to acquire the other two. 

Top 20, Bottom 80

The designations upper, middle, and lower may no longer be the best way to look at where you fit. Nor is the popular wrinkle in our politics—the 1% versus the 99%. Your income class could be something else, again with significant implications for your life and the nation's economy.

In his book, Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It, Brookings Institution Senior Fellow, Richard V. Reeves, breaks down the American class system, not in terms of 1% and 99%, but terms of 20% and the 80%. The top 20% sets itself apart in many ways.

In a review of the book, "Why the 20%, and not the 1% are the real problem," The Economist reports that while "between 1979 and 2013, average incomes for the bottom 80% of American households rose by 42%...by contrast, those of the next richest 19% rose by 70%, and of the top 1% by 192%." In other words, the top 1% is not the only income class pulling away from the rest of the country. 

The top 20% includes the lawyers, doctors, and managers, all the way up to CEOs and beyond. They marry later, are better educated, and have larger and richer social networks. They're healthier, too—they have statistically lower rates of heart disease and obesity.

Reeves argues that this class is essential for understanding inequality for two reasons. The first is that this class perceives their socioeconomic status as being squarely middle-class, while their actual circumstances put them among the nation's richest. However, because they're not the 1%, we tend not to focus on their behavior. 

The second reason is that this top quintile of earners—those making more than roughly $112,000 a year—have been big beneficiaries of the country’s growth. The top 20% of earners may not be seeing the income gains made by America’s top 1%, but their wages and investments have increased, and they enjoy the comforts of life at the top.

Further, this quintile accounts for a considerable portion of national income share, and Reeves argues that if the country wants to raise income-tax revenue to pay for social programs, as many Democrats would like, policies will have to focus on the top 20%.

It is more than enjoying comfort, in any case. According to Reeves, the top 20% also engages in different forms of "opportunity hoarding"—ensuring that their children have a better shot at remaining in that upper 20% of income earners—through "zoning laws and schooling, occupational licensing, college application procedures, and the allocation of internships." It puts a dent in America's idea of itself as a meritocracy.

What's Happening to Economic Mobility

How much economic mobility you've experienced—and expect for your family—is another aspect to consider when you're thinking about income class. In an article in The Atlantic, "The 9.9 Percent is the New American Aristocracy," Matthew Stewart, argues that while we are quite conscious of the inequality in America, we tend to be somewhat OK with this because "in the United States, everyone has an opportunity to make the leap, mobility justifies the inequality." So we like to think and claim. 

However, "contrary to the popular myth, economic mobility in the land of opportunity is not high, and it's going down." There's a concept called intergenerational earnings elasticity (IGE). Essentially, IGE measures to what extent a child's income is the product of their parent's income. Zero would mean that there's no relationship between parental income and child income, while a result of one would indicate that parental income determines child income entirely.

In the United States, IGE is at roughly 0.5. For reference, that's higher than "almost every other developed economy." That doesn't speak to commendable levels of economic mobility, or equal opportunity.

In the same article, Stewart cites the work of economist and former chair of Obama's Council of Economic Advisors, Alan Krueger. Krueger found that increasing immobility and increasing inequality are not uncorrelated trends. "It's as if human societies have a natural tendency to separate, and then, once the classes are far enough apart, to crystallize."

Class is Relative: Inequality and Its Effects 

What does the consolidation of wealth in the hands of fewer and fewer do to someone's sense of their income class? Some of this depends on awareness. The knowledge and experience of inequality change perceptions and behavior. This awareness has different implications at different ends of the spectrum. In a New Yorker article, "The Psychology of Inequality," Elizabeth Kolbert explores just that.

The Experience of Feeling Poor

Kolbert discusses this by describing the findings of psychologist Keith Payne, a UNC professor and the author of The Broken Ladder: How Inequality Affects the Way We Think, Live, and DieAccording to Payne, she writes, "...what's really damaging about being poor...is the subjective experience of feeling poor." This subjective experience of feeling less privileged compared to those around us has implications for behavior, as "people who see themselves as poor make different decisions, and, generally, worse ones."

It is not an unfair characterization. In an article from historian Rutger Bregman championing universal basic income he writes, "It's a harsh question, but look at the data: poor people borrow more, save less, smoke more, exercise less, drink more, and eat less healthily." Moreover, Payne cites research that suggests that the poor are more likely to engage in risky behavior.

It is not uncommon for the narrative around poverty to suggest that people are poor because of their bad decisions, but new research argues that the opposite is true. In their book, Scarcity: Why Having Too Little Means So Much, economist Sendhil Mullainathan and behavioral scientist Eldar Shafir explore what they call "the scarcity mindset."

A review of the book in The Economist summarizes their work well. When an individual feels they lack some vital resource—money, friends, time, calories—their mind operates in fundamentally distinct ways.

The scarcity mindset brings two advantages.

  1. The mind concentrates on pressing needs, with great focus.
  2. It "gives people a keener sense of the value of" that thing they seem to lack—they have a much better sense of what a dollar would be worth if they had it. 

The mindset can weaken the mind, as well. It "shortens a person's horizons and narrows his perspective, creating a dangerous tunnel vision." So it causes people significant anxiety, sapping brainpower and "reducing mental 'bandwidth.'" The pair cite experiments showing that feeling poor "lowers a person's IQ by as much as one night without sleep."  

So, the work in their book, Scarcity, would suggest that being poor changes how people think and behave. Later on, in Kolbert's piece, Payne cites research that he argues "provided the first evidence that inequality itself can cause risky behavior."

Research from Payne, Mullainathan, and Shafir indicates that the flaws some people believe to be inherent in the poor are the result of poverty itself. 

The 'Discomfort' of Extreme Wealth

The wealthy feel some discomfort with this consolidation of wealth, too, but for different reasons. In her book, Uneasy Street: The Anxieties of Affluencesociologist Rachel Sherman interviews members of the 1% and asks them all about one thing they would rather not talk about, their wealth and privilege.

Sherman distinguishes between two subgroups in the 1%—the upward-oriented and the downward-oriented. The upward oriented "tended not even to think of themselves as socially advantaged," because they tended to hang out in economically homogenous groups, where people had as much or more money than they did. The downward-oriented, with more economically diverse social networks, were "more likely to see themselves as privileged," and felt serious discomfort about that situation. 

In her article, Kolbert sums up one of Sherman's primary findings quite nicely, regardless of which direction the privileged were facing; "...the privileged prefer not to think of themselves that way."

In an op-ed for The New York Times, Sherman writes that this class "described themselves as 'normal people' who worked hard and spent prudently, distancing themselves from common stereotypes of the wealthy as ostentatious, selfish, snobby and entitled." Sherman found that the very wealthy took efforts to distance themselves from these descriptions, not just in self-description, but in behavior as well. Kolbert quotes Sherman writing about these descriptions and behaviors as illuminative of "moral conflicts about having the privilege."

That makes sense. No one wants to be seen as selfish, or entitled, or undeserving of wealth. However, ultimately Sherman argues that "such moves [from the 1%] help wealthy people manage their discomfort with inequality, which in turn makes that inequality impossible to talk honestly about, or to change."

A Complicated Question

Class is a complicated question. It involves more than just income. It involves the cost of living, lifestyle choices, and lived experience. It consists of social and cultural capital. So, while the Pew income calculator may tell us where we stand, the experience of class is entirely relative. People deduce their class standing from the cues in their immediate surroundings—their neighborhood, their workplace, their social circles. 

The middle class has stabilized in size, but it's losing income share, mostly to the top 20% and especially to the top 1%. Also, when we talk about the effects of class in America, we should keep in mind the top 20% and the top 1% because the behavior and choices of both these groups seem to produce increasing class inequality and immobility. 

Most people tend to think of themselves as middle class. However, the truth is, the middle class includes people with vastly different lifestyles and concerns. Pew's 20% upper class is, in essence, Reeves's 20%. People who belong to the lower sections of that quintile may not feel especially wealthy if those around them are far more affluent. Moreover, people who don't think of themselves as the middle class may develop behavior patterns that are connected to whether they feel poor or wealthy, without being aware of it.