What Does 'Middle Class' Look Like in Today's Economy?

What’s shrinking in size, overworked and woefully underpaid?

If you guessed the American middle class: ding ding ding! You're correct. Only half of U.S. adults live in a household with an annual income of $52,000 to $156,000, the range it takes to be considered middle income, according to the Pew Research Center. That share is significantly lower than it was in 1971, when 61% of the nation's adults qualified as middle income.

In 2022 — an era of historic inflation and a manic economy in which jobs are plentiful but wages are stagnant — more Americans are living paycheck to paycheck. And it's affecting more than just their income.

“People judge whether or not they're achieving the American dream by comparing their income and their lifestyle, or what their income can buy, to what they see around them," says Isabel Sawhill, a senior fellow at the Brookings Institution.

“Middle class is a state of mind," she says. And these days, it's an increasingly foggy one.

Defining the modern middle class

On paper, middle-class household income has increased considerably in the last 50 years. Measured in 2020 dollars, the median salary of the U.S. workforce is 50% higher now ($90,131) than it was in 1971 ($59,934), primarily thanks to women’s increased participation in the workforce, says Sawhill, who's a co-author of the Brookings report "A New Contract with the Middle Class."

Those gains, however, pale in comparison to the 69% growth enjoyed by the wealthiest households. Elisabeth Jacobs, a deputy director at the research nonprofit Urban Institute, said in a 2021 Brookings panel that if middle incomes had grown at the same pace as the top 20% of earners over the past 50 years, a solidly middle-class family would average around $139,000 annually (post-tax).

Sluggish wage growth certainly isn’t the result of Americans being under-credentialed: Pew’s research, published in April 2022, shows the share of people with college degrees has tripled in the last five decades. And while incomes have grown at a faster clip for those with bachelor's degrees, it's not buying them a better quality of life: According to Marketplace, the average American's productivity has grown three times more than pay since the 1970s.

A lack of personal time, which Brookings has dubbed the “middle class time squeeze,” is another source of strain. While employees in other high-income countries like France or Germany are working fewer hours than they were in the '70s, the opposite is true for Americans. According to Brookings, the average middle-class married couple in the U.S. puts in 11.5 more working hours per week than their predecessors did 40 years ago.

The U.S. also offers little in the way of child allowances, care, and paid family leave compared to other countries. Take Denmark, which spends $23,140 annually per child on care for children up to two years old, according to a New York Times analysis of data from the Organization for Economic Co-operation and Development (OECD). On average, the 16 wealthiest democracies tracked by the OECD each spend $14,436 per child in this age group.

By comparison, the U.S. spends a piddling $500 per toddler. And since these funds are largely available only to families in poverty, middle-income parents are left to shoulder the burden of childcare costs on their own.

Here's an even scarier statistic: Today, due to rapid inflation, married, middle-income couples will spend $26,000 more than they did just two years ago to raise a child to age 17, according to Brookings data.

“Because both parents are working, the typical middle-class family has a lot less time than it used to to do other things, including taking care of children," Sawhill says.

The impact of the pandemic — and the aftermath

In 2019, families across the class spectrum saw modest income growth for the first time since the Great Recession.

Unemployment rates also showed that the U.S. workforce was, at long last, finally on the rebound — falling from near-record highs (9.5%) in 2010 to near-record lows in 2019 (3.5%), according to a Pew analysis.

COVID-19 brought that to a grinding halt: In April 2020, unemployment rates jumped to 14.7%, the highest level in recorded history.

Researchers are still capturing numbers on the financial toll COVID-19, and concurrent economic inflation, has wreaked on U.S. households. But the big picture is discouraging for middle-income earners, who, according to a July 2022 study from insurance company Primerica, are accumulating more credit card debt and saving less for retirement than they were pre-pandemic.

And while home ownership remains a hallmark of the modern American dream, a 2021 study from LendingTree found that nearly half of renters think they'll never own a home.

“Families who fall into that lower to middle-income threshold are struggling a lot with wanting to maintain their lifestyle and still be saving towards longer-term goals,” says Ziad Hijazi, a financial advisor for the investment management firm Gerber Kawasaki.

There’s no quick fix to the havoc being inflicted on regular Americans’ finances. Still, experts say, several measures could soften the blow.

Policy-wise, Brookings coauthors Sawhill and Richard Reeves propose eliminating the income tax for most middle-class earners, college scholarships in exchange for community service, and universal paid family, parental and medical leave benefits — among other solutions.

From a personal finance perspective, Hijazi, the financial advisor, says families shouldn't wait to start making adjustments to their budgets. Prioritizing what expenses matter most — especially when inflation is taking a battering ram to your buying and borrowing power — can have long-term benefits. Feeling powerless over forces like inflation and income distribution is understandable, but in an economy that's becoming increasingly divided between the haves and have-nots, small savings goals can be empowering — even if it's just $10 a month, he says.

Middle-class suffering is real, and the socioeconomic forces at play shouldn't be minimized. Finding achievable ways to cope in challenging times, however, is one of the most powerful tools available to families and communities waiting for the slow-moving wheel of government.

“A really good exercise I do with my clients who are worried about expenses is to write down the top five or top 10 most important things to them,” Hijazi says. “Is it traveling abroad? Is it going to the beach, is it getting out? Is it music? Having them put it on paper and visually see what's important to them, allows them to better focus on what brings them fulfillment and satisfaction.”

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