Much of the Presidential primary season focused on income inequality and the growing divide between the “one percent” and the “99 percent.”
But the real class war is the one that’s emerging within the middle class.
In a new paper published by the Urban Institute, I’ve developed an approach to follow the movements from 1979 to 2014 of five groups: the poor and near-poor, the lower middle class, the middle class, the upper middle class, and the rich. What I find is that the middle class is indeed shrinking – but it’s due to the swelling ranks of the upper middle class.
I set class boundaries by using absolute income thresholds adjusted for inflation. Since 1979, there has been growth across the income ladder with the exception of the bottom six percentiles. Overall, the average real growth rate was 53 percent, but it was unevenly divided among the five groups of Americans. Those with higher incomes had higher growth rates than those with lower incomes: at the 20th percentile, the growth rate was 13 percent while at the median it was 30 percent. It was only at the 81st percentile and higher that the growth rate surpassed the average growth rate of 53 percent.
I also found that the share of Americans in the upper middle class – defined as households with incomes in 2014 dollars of between $100,000 and $350,000 – more than doubled from 13 percent of Americans in 1979 to 29 percent in 2014. Because virtually all rungs on the income ladder got some share of the growth, this means that the shares of the poor and near/poor, the lower middle class, and the middle class shrank. Moreover, the income gaps between classes grew—for example, the average income of the upper middle class versus the average income of the middle class grew from 91 percent higher in 1979 to 120 percent higher in 2014.
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As a result of the growing size and relative incomes of the upper middle class and rich, the center of gravity in the economy also changed: In 1979, 70 percent of all incomes were in the bottom three income groups and 30 percent was controlled by the upper middle class and rich. By 2014, these ratios were almost flipped as the rich and upper middle class controlled 63 percent of all incomes and the bottom three groups had 37 percent. Further, the educational composition of the upper middle class shifted from being very diverse with only 30 percent having a bachelor’s or graduate degree in 1979 to 60 percent having a college degree in 2014.
These conclusions also track a recent study by the Pew Research Center that’s often cited (incorrectly) as evidence of a declining middle-class. The title of the report –The American Middle Class is Losing Ground—leads many to think that the declining share of the middle class must be due to more people moving down, and the study indeed finds that the size of the middle class shrank from 61 percent in 1971 to 50 percent in 2014. However, Pew also finds that nearly two-third of the people who left the middle moved up. And more importantly, what is left unsaid is that the middle class in 2014 had real incomes more than 36 percent higher than middle class people in 1971.
These simple facts show how important it is to shift our nation’s inequality discussion away from focus on just the “one percent.” The widening gulf between some middle-class Americans and their neighbors also helps to shed new light on the depth of populist anger. For most Americans, the plutocrats in the top 1% are remote figures whose standard of living is impossible to attain. But it’s another thing to be confronted by the success of those in one’s everyday experience.
As Dennis Gilbert notes in his The American Class Structure in an Age of Growing inequality, many people without college degree feel disrespected by those with a college degree. Often when they think about the “rich,” it is anyone with $100,000 or more – not those in the true one percent earning $350,000 or more.
Popular media continually glorifies the various aspects of how the upper middle class lives. Newspapers and local magazines reviews the top restaurants in town, which invariably cost a minimum of $80 per diner. Travel articles extol the sights of Rome, Paris, Jerusalem, and other places around the world. By contrast, middle class and lower middle class travel tends to be much closer to home. Even on TV, there are plenty of ads for luxury cars—e.g., Mercedes, Audi, Lexis, BMW, Jaguars, Cadillac, Lincolns, and other brands–that are out of most people’s price range but presented to all Americans as items that should be within their reach.
And finally, there is the question of home ownership. Research from Bischoff and Reardon shows that communities are more segregated by income than ever before. The pecking order across neighborhoods is well-known and is reflected in vastly different prices and vastly different amenities. The upper middle class trend of fancy kitchens and bathrooms can require remodeling expenses greater than the total price of the homes that middle and lower middle class people can afford.
The tensions and resentments of the bottom 70 percent are much more based on interactions of the middle class and lower middle class with the upper middle class than they are with interactions between the middle class and the rich. Couple this with rising uncertainties and anxieties about the future and you have the disappointment and anger that have benefited the populist campaigns of Republican Donald Trump and Democrat Bernie Sanders.
But understanding the real roots of this anger also points to a different set of solutions. The rage of many Americans may be less about the growing advantages of the very rich than about the inability of the middle class to move up together.