Why Is the “Middle Class” Stressed?: An interesting New Hypothesis from Emmons and Noeth
There have long been a bunch of hypotheses about why the American “middle class” feels “stressed” in spite of constant real incomes and what appears to me increased utility over time as more expenditure shifts toward information goods where consumer surplus is a higher multiple of factor cost:
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Americans are used to seeing real incomes improve at 2%/year–doubling every generation–and they have not been getting that. Living little better than your predecessors a generation ago is an unpleasant shock.
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The things that have been becoming cheaper are not seen as things key to your “middle class” status, while the things becoming more expensive and difficult to obtain–a detached house in a good neighborhood with a short commute, health insurance, secure pensions, a good education for your children–are things that it used to be taken for granted a middle-class family could get.
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The widening gap between the middle class and the upper class.
Now come Emmons and Noeth with a new and very interesting hypothesis: that people who have done better than their parents with respect to education and family structure are no richer, and people who have matched their parents with respect to education and family structure are poorer. In other words, people who thought they were upwardly mobile are finding themselves with no higher real incomes. And people who thought they were sociologically stable are finding themselves poorer:
…William R. Emmons and Bryan J. Noeth… find… median [real] income… has been stable; but the middle class genuinely is falling behind that mark…. Economists… defin[e] the middle class as households with income roughly 50% higher and lower than the median…. $26,000 to $78,000.
Sociologists… define the middle class… demographically…. Households headed by someone aged at least 40… with near-average income and wealth, headed by a white or Asian with a high-school diploma, no more or less, or by a black or Hispanic with a two- or four-year college degree…. These households are sandwiched between “thrivers,” families with above-average income or wealth, headed by someone with a two- or four-year college degree “who is non-Hispanic white or Asian”; and “stragglers,” headed by someone without a high school degree or, if black or Hispanic, a high school diploma at most….The real middle class (blue) has been sinking… upper-income “Thrivers” (orange) have been doing better relative to their benchmark, the 75th percentile of U.S. income, and low-income “Stragglers” (green) have been holding steady…. The median income of the demographically defined middle class… is 16% lower now than it was in 1989…. The sociologically defined middle-class family ranked at the 55th percentile of U.S. income earners in 1989; by 2013 it had fallen to the 45th percentile…