Scott Winship explains for National Review Online readers why he’s not so worried about a new report decrying the declining American middle class.
I received terrible news last week from the Pew Research Center: I am not a middle-income American. You see, the middle class has become “hollowed out” — and I am just one of tens of millions affected. Back in the glory days of 1971, 61 percent of American adults lived in “middle-income” households. Today? Just 50 percent. Half of us, my friends, have been hollowed out. Yet more evidence, if any were needed, that the American economy is fundamentally broken, riven asunder by rising inequality.
So went the typical write-up of Pew’s results, which the tone of the Pew report itself encouraged (title: “The American Middle Class Is Losing Ground”). Dig beneath its hollowing-out claim, however, and it becomes clear that the trend documented by Pew is hardly cause for alarm. …
… Another important point is that Pew’s definition of “middle income” isn’t anchored to any fixed standard of living. In fact, it represents a rising standard of living over time. Imagine that the incomes of the poor, middle, and rich all increase by 50 percent over time. The Pew measure would indicate that the share of adults who are “middle income” would be no higher than it was initially. It is not obvious why we should care that the middle class, in this example, is no larger over time.
In fact, between 1969 and 2007, the household income of the median adult rose by 52 percent. The declining share of the “middle income” group occurred because incomes grew less below the median and more above the median. Nevertheless, the 25th percentile (the income of the person poorer than 75 percent of adults) rose by 40 percent from 1969 to 2007. (The 90th percentile increased by 85 percent.) As a result, the median adult in the larger “lower income” group in 2007 was better off by 48 percent than the median lower-income adult in 1969, and the median of the hollowed-out “middle income group” was higher by 54 percent. Those are impressive improvements in living standards even though the “upper income” group saw its median income rise by 66 percent. (Pew reports smaller gains between 1970 and 2014 — which it sometimes calls 1971 and 2015 — because it uses an inferior cost-of-living adjustment.) While middle-income adults, by Pew’s definition, have shrunk by 11 percentage points as a share of the population since 1970, 7 points of that decline is due to more Americans’ being in the upper-income group. Surely the better way to characterize the results is to note that 71 percent of adults are middle-income or better, which is down from only 75 percent in 1970. The slightly enlarged lower-income group — 4 percentage points larger after 44 years! — has seen its median income rise by 42 percent (not the 28 percent Pew reports).