What Do We Mean by the Middle Class?

11 Mar 2016 3:21 PM | Mike Lillich (Administrator)

By Oren M. Levin-Waldman

(First published in the Yonkers Tribune, March 7, 2016)

We hear a political class profess to care about the middle class, but the obvious question is just what does that mean? How is the middle class defined and can the definition for the nation fit all the states? This is a critical question because the term is often bandied around, but it isn’t clear what it means. Were we to look at workers in families, and define the middle class as these workers falling within certain parameters of family income, we would have a very different definition than if we were simply looking at these workers on the basis of their income alone. And yet, when we talk about growing income inequality, it is often taken as code for the disappearance of the middle class.

The growth in wage inequality between say 1982 and 2013 is often considered to be problematic because it suggests that there may be fewer people in the middle of the wage distribution between the bottom and top quintiles. This, however, is not easily borne out by the data. In 1982, the average family income of full-time workers in the bottom quintile was $8908, and the average family income of full-time workers in the top quintile was $56,572, yielding a ratio of 6.35 percent. In 2013, the average family income of full-time workers in the bottom quintile was $24,376, and the average family income of full time workers was $217,277, yielding a ratio of 8.9. on this basis we would say that income inequality rose by 40.2 percent.

Still, how do we define the middle class? In 1982, mean family income was $28,857 and in 2013 it was $94,433. That is the family income of those individuals according to the Current Population Survey (CPS) who were specifically working for wages. The mean family income of all families, however, was only $24,117 and $76,966 in 1982 and 2013 respectively.

And yet, the percentage of those falling into this definition of the middle class is approximately 40 percent, and it does not really change between 1982 and 2013. The percentage of those individuals earning wages defined by family income between the 40th and 80th percentiles in 1982 was 49.2 percent and 48.7 percent in 2013. Can we really say that this decrease represents a shrinkage of the middle class?

On the other hand, if our definition of the middle class are those with incomes between the 40th and 80th percentile, and it is only 40 percent of all families rather than those earning wages in families which is close to 49 percent, then we may indeed have something to worry about. We may indeed have a bell shape distribution in terms of wages, at least according to the CPS, but the middle is really not that big.

Moreover, these definitions would surely vary from state to state. Consider New York State where the cost of living is higher than much of the rest of the nation. The mean family income of individuals earning wages was $29,507 in 1982 and $98,071 in 2013. But the median family income of those working for wages was $26,381 in 1982 and $73,000 in 2013. And the median family income for families was $20,374 in 1982 and $52,000 in 2013.

This means that by the 40th to 80th percentile definition individuals earning wages were in families with incomes between $22,308 and $43,100 in 1982 and between $57,984 and $135,075 in 2013. And family incomes were otherwise between $16,292 and $37,088 in 1982 and between $39,193 and $113,469 in 2013. Again, about 40 percent fall within those parameters, and there was little change from 1982 to 2013. This would suggest that the claim that the middle class is disappearing is simply not true.

What, then, is the point of all this? It might strike some as an overly technical discussion of what constitutes the middle class. By some accounts the 40-80 percentile definition is perhaps too broad. It certainly encompasses more people than those earning wages that were typical of the manufacturing sector more than 30 years ago. For those who believe that the answer to income inequality is to raise marginal taxes on incomes over $250,000, the middle class would indeed be defined as those in families earning up to $250,000. But would that be an accurate definition in New York City? And yet if we do define the middle class on the basis of the 40-80 percentile definition, then it isn’t hard to see some politicians calling for raising marginal taxes on lower incomes.

Peripherally, the reader may want to conclude that there really is no objective definition of the middle class; rather it is all subjective. The data presented in this column is data I ran from the CPS on the computer. Which is to say, we all manipulate data, and politicians with a particular political agenda are no different. What is clear, although not everybody agrees that it is a real problem, is that inequality, particularly wage inequality rose between 1982 and 2013. This was largely because the incomes of those at the top rose at a higher rate relative to the incomes of those at the bottom. Meanwhile, the wages of those in the middle simply stagnated. And this happened because institutions like unions and the minimum wage that used to bolster wages and maintain the middle class were in decline.

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