Are you middle class?

American Demographics, Oct, 1996 by Elia Kacapyr, Peter Francese, Diane Crispell

Most Americans claim middle-class status, although in reality, income growth is uneven. The trends that have caused a middle-class squeeze won't turn around. But upcoming demographic shifts may get real income moving again.

Being middle class has emerged as a vital part of the 20th-century American pscyhe. The majority of Americans define themselves as middle class, regardless of their actual income level. This perception is obviously off-base, but with no official definition, it's hard to pin down how much Americans overestimate their middle-class status.

It's not difficult to understand why they do it, though. Generations of immigrants to the United States have come seeking streets paved with gold. Trying to do better than the next guy is virtually a virtue in our free market economy. But in 1994,5 percent of U.S. households held 21 percent of the nation's aggregate income. When people realize that doing as well as the next guy is the best they can hope for, aspiring to middle-class status becomes the goal and the virtue.

Although most would rather be rich than not, people often deride those who are out of sheer envy. The word yuppie rapidly took on a derogatory connotation in the mid-1950s, and consuming in a conspicuous way was considered bad taste in light of others' misfortunes. As a result, even those who achieve affluence may downwardly aspire to respectable and decent middle-class status--not financially, of course, but as a matter of principle. At the other end of the income spectrum, people who might have proudly described themselves as working class in the past may now feel uncomfortable with the unfashionable term, so they opt for middle class instead.

Even as the perception of middle class has stretched to encompass an enormous range of people, the reality is that economic growth does not raise all boats equally. In the decade 1984-94, average household income (in real terms) rose by less than 1 percent. The average income of the poorest one-fifth of households in the U.S. increased by only 0.1 percent. At the same time, the top one-fifth of households saw their average income jump by 20 percent.

Uneven growth is a characteristic of market-oriented economies. Although economists and others have long recognized the phenomenon, its causes are not well understood. Certainly, market-oriented economies rely on incentives to promote work effort and risk-taking. Those who respond most capably to these incentives are best rewarded. Still, few analysts conclude that the poor are poor because they are not motivated. Similarly, few would contend that everyone with money got it through hard work and determination. Wages are determined by supply and demand. Sometimes those forces work in one's favor. In other cases, they do not. For America's middle class, the odds have been against them, but the future may be different.

FLUCTUATING CURRENCY

The first thing to note about middle-class households is that they are not exactly a dying breed. Regardless of the specific definition adopted, the proportion of households with moderate income is diminishing. Yet in absolute numbers, they are increasing, just more slowly than other households. For example, if you define middle-class households as those with incomes ranging around the national average, you find that the share with incomes between $25,000 and $50,000 in 1994 dollars shrank from 38 percent in 1970 to 30 percent in 1994. At the same time, the number of such households grew from about 25 million to 30 million. A broader definition of the middle class as households with incomes of $15,000 to $75,000 in 1994 yields similar results. With this definition, the middle class shrank to 64 percent of all households in 1994 from 70 percent in 1970.

The middle class may also be defined as households with income between 75 percent and 125 percent of the median. Social criteria, such as educational level or occupation, may also help identify the middle class. Again, regardless of the particular definition adopted or the unit measured--households, families, or individuals--the proportional size of the middle class has been steadily decreasing for more than two decades.

It is inappropriate, however, to view the middle class as a stagnant or evaporating pool. Each year, thousands of Americans leave the middle class for greener pastures in higher income brackets or, less fortunately, they fall below middle-class levels. Working against this outmigration is an inmigration from above and below. The middle class has been declining because the inmigration has been losing steam relative to the outmigration.

For some, economic process is ever upward, while for others it is a persistently downward spiral. But for many, it is a series of up-and-down fluctuations, reminiscent of the child's game, "Mother, May I?" One giant step forward, three baby steps back. Such swings result from events such as job changes, maternity leaves, and the comings and goings of earners and other household members.