Perry on the Declining Middle Class?

Mark J. Perry, "Yes, the Middle Class Has Been Disappearing, But They Haven’t Fallen into the Lower Class, They’ve Risen into the Upper Class," Carpe Diem, July 12, 2013

The chart above is based on Census Bureau data on “Money Income of Families–Percent Distribution by Income Level, in Constant (2009) Dollars” from 1967 to 2009 (Table 696) for the family income categories: a) $25,000 and under, b) $25,000 to $75,000 and c) $75,000 and over.

The chart and this post were inspired by a comment made by Ken on this CD post earlier today on middle-class incomes over time and the myth of middle-class stagnation. Ken points to Census Bureau Table 696 as evidence that the reason the middle class appears to be “disappearing” is because that income group is actually “disappearing” or moving into the upper class, and not falling into the lower class as is typically claimed.

Here’s what the family income distribution data in the chart above show:

1. In 1967, almost 62% of American families were earning between $25,000 and $75,000 in constant 2009 dollars, an income range that might accurately describe America’s “middle class.” Also in that year, fewer than one out of six (16.3%) American families had income above $75,000 (upper class), and 22% of families were earning $25,000 or less, an income category that might be described as “lower class.” In 1967, there were almost four American families earning a middle-class income ($25,000 to $75,000) for every high-income family earning above $75,000. Further, there were almost three “middle-income” families for every one “low-income family,” so the middle class American families earning between $25,000 and $75,000 clearly represented a significant share of US families.

Here’s what happened over time:

2. The share of lower-income families fell over time by 4.2 percentage points, from 22% of all US families in 1967 to only 17.8% of all US families in 2009, while the share of middle-income families decreased by 18.6 percentage points during that period, from 61.8% in 1969 to 43.2% in 2009. So where did those 22.8% of families go that disappeared from the lower income and middle income categories in the 42-year period between 1967 and 2009? They “disappeared” into the upper-income category of incomes above $75,000, which increased by 22.8 percentage points, from a 16.3% share of American families in 1967 to a 39.1% share in 2009. Whereas “middle class” families were so numerous that they outnumbered “upper class” families by a ratio of almost 4:1 in 1967, so many American “middle class” families have moved by the 2000s to the “upper class” by income, that those two groups have been almost equally represented for their shares of the total number of US families over the last decade (see the convergence of the blue and red lines in the chart above).

Bottom Line: In other words, America’s “middle class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%. On the previous CD post, Ken commented that although “Many prominent people like Paul Krugman claim that the middle class has been in decline since the 1970s, that assertion is incredibly and verifiably wrong.” And according to the percent distribution of family income data by income level (in constant dollars) in Table 696 from the Census Bureau, I think Ken is exactly right.