If you ask five different people to define the “middle class,” you’ll probably get five different answers. In fact, many people consider themselves to be middle class regardless of how much money they make.
The Pew Research Center has a specific definition for middle class: any household earning two-thirds to double the national median income, after incomes have been adjusted for household size and cost of living.
The national median income in the U.S. is currently $61,372, according to the Census Bureau. So according to this definition, middle-class households are those earning between $40,505 and $122,744 a year.
Future of the Middle Class
There is concern among some experts that being a member of the middle class no longer affords many Americans the comfortable lifestyle that it used to. This is one reason why the Brookings Institute recently launched a new initiative called the Future of the Middle Class.
The goal of this initiative is to “improve the quality of life of America’s middle class and to increase the number of people rising to join its ranks,” according to the Brookings Institute website. “We seek to advance public understanding of challenges facing the middle class and barriers to upward mobility,” the website adds.
Telling the Full Story?
The good news is that median income increased 1.8 percent last year, according to the Census Bureau’s annual report, to finally get back to where it was before the Great Recession. However, the Brookings Institute believes that the data from this report may not tell the full story about middle-class income trends.
They have listed a number of specific reasons why some members of the American middle class have fallen behind financially, including the following:
- Middle-class incomes are stagnant. As noted above, it has taken a decade for the median income in the U.S. to reach its pre-recession level. But the longer-term trend over the past 50 years is even more discouraging. The median household income in 1967 (adjusted for inflation) was $44,895, according to the Census Bureau. So in a half-century, this critical measurement of middle-class income has only risen by about $16,000.
- Employment and wages are declining. The Brookings Institute reports that wages for Americans at the bottom and middle of the skill and wage distribution have declined or stagnated. In addition, the “college wage premium” has flattened recently, though college graduates can still expect to earn about 80 percent more over their lifetimes than high-school graduates without a college degree.
- The financial prospects for middle-class children are declining. It used to be that most Americans believed their children would grow up to be better off financially than they are. But this isn’t the case anymore: One-third fewer adults now believe this than believed it in 2007 before the recession hit, and three-quarters are no longer confident their children will be better off financially than they are when the children grow up. Also, about 90 percent of people born in 1940 experienced higher incomes when they grew up. Among people born in the 1980s, this dropped to just 50 percent.
- Financially speaking, location matters more than ever. Where individuals live has a disproportionate impact on their ability not only to move up into the middle class, but also to stay there. For example, the chance that someone born in the bottom quintile will be able to rise into the top quintile as an adult is only four percent in Charlotte, N.C., but it’s 13 percent in San Jose, Calif. The largest metro areas have accounted for the vast majority of population, employment and economic growth since 2010, according to the Brookings Institute, while the rural population is shrinking. As a result, the financial future of many middle-class households is highly dependent on geography.
- Middle-class families are more fragile than ever. This fragility is based largely on the dependence by many middle-class families on two incomes to make ends meet. According to the Council of Economic Advisors, essentially all of the income gains enjoyed by middle-class American households since 1970 have occurred due to women’s economic contributions. However, women’s participation in the labor force is on the decline. “This has serious implications for many middle-income families,” says the Brookings Institute, since “adding a second earner dramatically increases the financial resources available to a family.”
Improving Financial Prospects
The Brookings Institute concludes that a lot of work needs to be done to improve the financial prospects of American middle-class families. This is especially true when you consider macro changes, like in global trade and technology, that are eliminating some jobs and even entire industries while creating new ones.