We’ve been told middle class people have enough money to pay the bills and live a comfortable life. Most politicians speak directly to the middle class at some point in any campaign speech. Middle class families can enjoy tax breaks higher income families can’t such as lower capital gains tax, child care credits, and even credits for furthering their education. Who wouldn’t want to be a part of the middle class?
The recent report by the Federal Reserve of St. Louis sheds light on why being part of the middle class may not be such a great thing. The first priority of the report was to determine just what is the demographic of the middle class. Economists and sociologists have differed on this opinion. After marrying the two viewpoints, Senior Economic Advisor William Emmons and Lead Policy Analyst Brian Noeth painted a grim picture.
“Our version of the demographically defined middle class reveals that families that are neither rich nor poor may be under more downward economic and financial pressure than common but simplistic rank-based measures of income or wealth would suggest.”
In the past, economists have defined middle income as it relates to the median income across the country. A popular idea is to take 50 percent above the median income and 50 percent below the median income to determine the citizens who fit the middle class. For example, the median income for families in 2013 according to the American Community Surveys was $52,250. This would put middle class family incomes between $26,125 and $78,375.
Sociologists have determined middle class to not so much be based on income earned but cultural status. Attributes they use to define one’s place in society might include occupation, marital status, education, and even race. In fact, the report indicates one of the fastest growing attributes has to do with age. More Baby Boomers are retiring today than ever.
Emmons and Noeth’s conclusion was to combine the economist and sociologists viewpoints and come up with three distinct categories of people.
- Thrivers (33 percent of families 40 or older in the 2013 SCF): Families likely to have income and wealth significantly above average in most years; these families are headed by someone at least 40 years old with a two- or four-year college degree who is non-Hispanic white or Asian;
- Middle class (44 percent of families 40 or older in the 2013 SCF): Families likely to have income and wealth near average in most years; these families are headed by someone at least 40 years old who is white or Asian with exactly a high school diploma or black or Hispanic with a two- or four-year college degree; and
- Stragglers (23 percent of families 40 or older in the 2013 SCF): Families likely to have income and wealth significantly below average in most years; these families are headed by someone at least 40 years old with no high school diploma of any race or ethnicity and black or Hispanic families with at most a high school diploma.
It should be noted that the age of 40 is where the study focuses on. Emmons and Noeth suggest that prior to this age the lure of continuing ones education could skew the numbers.
With the defined groups set, Emmons and Noeth applied the principal over the course of 15 years worth of data. They reached this somber conclusion.
“The median incomes of thrivers and stragglers were slightly higher in 2013 than in 1989—about 2 and 8 percent, respectively. The median income of the demographically defined middle class, on the other hand, was 16 percent lower in 2013 than in 1989. The median wealth of thrivers was 22 percent higher in 2013 than in 1989, while the typical family in each of the two other groups experienced large declines, of 27 percent among the middle class and 54 percent among stragglers.”
There is a popular saying that the rich keep getting richer, and the poor keep getting poorer. According to this finding, the middle class gets poorer faster.