Both presidential candidates say they are the champions of the middle class. They also point a finger at one another for eroding this already-weak section of America.
But a Pew Research Center study released this month shows that the middle class has been thinning for decades. About 40 years ago, the middle class made up 61 percent of all adults, compared with 51 percent in 2011. Only the upper class made gains.
The Pew study examined financial data and perceptions of the middle class between 1970 and 2011, specifically regarding gains and loses, views on the economy and politics, and outlook for the future.
Blacks, Hispanics, Asians, and Pacific Islanders, college students, and those with only a high school diploma were among those who lost significant ground in the past decade. Partly responsible for the downturn was the housing-market crash and decline in median household incomes for the first time since World War II.
From the point of view of an economist at a think tank that examines the trends and policies of working people in the U.S., the reasons are simple: “Wealth is in their housing and what they get paid,” explained Lawrence Mishel, president of the Economic Policy Institute.
“They don’t have a lot of dividends,” he continued. “Their wealth is … not in financial assets.”
MIDDLE AMERICA DEFINED
The definition of middle class in America is at times varied and wide. The Heritage Foundation, a conservative think tank, describes the middle class as the 60 percent not in the lower 20 percent or higher 20 percent, according to a Reuters story. Using that categorization, the annual income of the middle class is a household earning between $25,000 and $100,000.
In contrast, the Pew study relied on socioeconomic self-categorization that resulted in a median response of $70,000 for a family of four; U.S. census data places the median annual household income at $68,274.
For the study’s purposes, Pew calculated in 2011 dollars for a household of three. Using that formula, researchers found that wealth for middle-income households—the sum of assets minus debts—took a hit in the past 20 years.
The median net worth fell 28 percent to $93,150 in 2010 from $152,950 in 2007 “erasing two decades of gains,” according to the study.
“Not only did they lose wealth [during the Great Recession], they’re no wealthier than they were 20 years ago,” said Richard Fry, coauthor of the Pew report. “Their wealth is basically lower than it was in the 1990s.”
DECLINE IN WAGES
Since minority groups are more likely to rely on their wages to climb—and even to stay—in the middle echelon, policies on the minimum wage, the ability to unionize, and housing-market accessibility impact this group significantly, Mishel said.
“We allow the minimum wage to be low. We allow people’s right to form a union to be weakened,” Mishel said. Globalization also allowed these groups “to take it on the chin.”
(GRAPHIC: U.S. Minimum Wage, 1938 to 2010)
In his new report “Unions, Inequality, and Faltering Middle-Class Wages”, Mishel finds that the share of the workforce represented by unions fallen by more than half in the past four decades, from 26.7 percent in 1972 to 13.1 percent in 2011.
The study found that unions historically raise the wages of blacks, Hispanics, Asians, and other people of color.
“Hispanic and black men tend to reap the greatest wage advantage from unionism, though minority women have substantially higher union premiums than their white counterparts,” Mishel reports in his findings.
IMPORTANCE OF MANUFACTURING
Labor Secretary Hilda Solis said that manufacturing jobs, which now require computer and information-technology education, could be one way to help Latinos and other minorities rise in the middle class.
While the 1994 North America Free Trade Agreement among the United States, Mexico, and Canada sent manufacturing jobs south, Solis said that the U.S. can now incentivize companies to produce goods stateside by providing tax breaks.
“Many of those jobs may never come back,” Solis said, adding that the country can instead focus on manufacturing goods in the renewable-energy sector to keep a competitive edge.
“We need to create more incentives for jobs,” she said.
The Pew study also showed despite stagnate movement among classes, minorities and the young are among the groups most hopeful about the country’s long-term economic future. About 78 percent of blacks and 67 percent of Hispanics said they are more optimistic, compared with 48 percent of whites.