Study: The middle class is disappearing because people are richer, not poorer


You've probably seen a headline reading "the middle class is disappearing," or heard a politician yell something to that effect in recent months.

The thing is, it's a true statement. But where is the middle class actually disappearing to? That answer might be unexpected if, as Yahoo Finance says, you "buy the angry rhetoric from this year's presidential campaign."

That's because this study by the Urban Institute found that rather than the middle classes falling into the lower-middle bracket, there has instead been a significant increase in households that have risen into the upper-middle class.

Basically, many middle class families have gotten richer, not poorer.

The background

The study found that in 1979, just 12.9 percent of the population was in the upper-middle class – which is defined as a family of three with a household income (in 2014 money) of between $100,000 and $349,999.

By 2014, this had grown to 29.4 percent – the biggest rise of any social class.

The regular middle-class meanwhile ($50,000-$99,999) shrank from 38.8 percent to 32 percent,

Here's a chart that shows the changes over 35 years, revealing the proportion of lower-middle class and the poor has also fallen, while the proportion of rich people (earning $350,000-plus) has increased to 1.8 percent.

This is good, right?

Well, kind of.

On the one hand, it means a greater proportion of Americans are earning higher salaries compared to the late 1970s, taking advantage of the widespread economic growth seen during that period.

On the other hand though, the wealthier you are, the more your wages went up during that time – meaning those in the upper-middle and rich classes benefited more from the economic growth than those in the middle, lower-middle, and poor classes.

Income inequality has been a hot button issue for Bernie Sanders during his Democratic campaign for president, and this chart shows that since 1979, incomes for higher earners grew more than those earning less, while the very poorest got even poorer during that time.

This passage explains the shifting wealth gap, and how the majority has flipped from the bottom three income groups, to the wealthiest.

"Although wealthier people always have a greater share of total income, this report documents a major shift in the distribution of economic resources. In 1979, the bottom three income groups controlled 70 percent of all incomes, and the upper middle class and rich controlled 30 percent. By 2014, this distribution shifted to 37 percent for the bottom three groups and 63 percent for the upper middle class and rich groups."

If the economic growth seen since 1979 was distributed equally, the report says, the proportion of poor or near-poor people would be at 12.8 percent rather than 19.8, while the proportion of "rich" people would be about the same.

How reliable is the study?

Plenty of studies on the decline of the middle class have been released in recent years and some of them provide different results.

Last year the Pew Research Center published a report that claimed the upper-middle/rich and lower-income/poor classes have both grown, so they now match the number of households in the middle class, as the Washington Post reported.

The Urban Institute report says that only the upper-middle/rich has been growing. But a problem with the Urban Institute study is that it only took into account inflation when comparing 1979 figures with 2014.

CNN Money points out that wages grew faster than inflation during that period, so it is arguable that the $100,000 threshold for the "upper-middle" class should be higher.

Indeed, the Pew Research study put the threshold for "upper-middle" class at $126,000, which only 21 percent of U.S. households fall within.

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