Yes, America's Middle Class Is Shrinking - Here's the Proof

SocietyThe middle class is shrinking here in the U.S. of A., according to new data from The Pew Charitable Trusts...

A March 19 study revealed the percentage of American middle-class households dropped in every state between the years 2000 and 2013. In other words, households with earnings between 67% to 200% of their respective state's median income (thereby qualifying them as "middle class") fell during that period.

For example, Minnesota's middle-class population dropped from 52.9% in 2000 to 48.9% in 2013; Nevada's middle class fell from 53.6% to 48.8%; and Georgia, which had a middle-class-identified population already below 50% (at 49%), fell almost 5% to 44.2%.

"Our future will bring more wealthy people than ever before, but also more poor people," wrote libertarian economist, professor, and New York Times best-selling author Tyler Cowen in his 2013 book "Average Is Over." "Rather than balancing our budget with higher taxes or lower benefits, we will allow the real wages of many workers to fall - and thus we will allow the creation of a new underclass."

Cowen speculates that employers will have authoritarian-like rule over their employees in the future, demanding perfection to weed out the underperformers. Cowan also predicts retirees will live in favela-like Shantytowns. Youngsters, disillusioned by their prospects (or lack thereof), will keep themselves occupied with drugs and online entertainment.

Whether or not a dwindling middle class will result in Cowen's dystopian future, one thing is for certain: The middle class is shrinking - and has been doing so since the late 1970's...

5 Facts that Prove the U.S. Middle Class Is Shrinking

Evidence Middle Class Is Shrinking No. 1: Wages have been stagnant for decades. The United States has experienced generally stagnant wages while high-earning individuals keep making more and more annually. On Jan. 6, Societythe Economic Policy Institute (EPI) released data showing that in 2007 (the last year before the Great Recession), "the average income of the middle 60% of American households was $76,443. It would have been $94,310, roughly 23% (nearly $18,000) higher had inequality not widened (i.e., had their incomes grown at the overall average rate - an overall average buoyed by stratospheric growth at the very top). The temporary dip in top incomes during the Great Recession did little to shrink that inequality tax, which stood at 16% (nearly $12,000) in 2011."

Evidence Middle Class Is Shrinking No. 2: The worker-to-productivity ratio is grossly unbalanced. Wage growth stagnation has stemmed from a growing wedge between overall worker productivity - the improvements in the amount of goods and services produced per hour worked - and the pay (wages and benefits) received by a typical worker.

According to the EPI, over the 30-year span following the Second World War, hourly compensation for the majority of workers rose 9%. That number was approximate to the productivity growth at the time - also 9%.

But the parallel hasn't persisted.

With the exception of a few years in the late 1990s, compensation for the majority of working Americans fell behind overall productivity - by a lot. Between the years 1973 and 2013, hourly wages for a worker in a nonsupervisory position rose just 9%. However, productivity during this time rose a whopping 74%.

Because workers have been putting in more time for scant, if any, pay increases over the last three decades, they haven't been able to save and prepare for retirement - which brings us to our third piece of evidence...

Evidence Middle Class Is Shrinking No. 3: Middle-class workers' heads are just above water. According to a Feb. 20 article from Yahoo! Finance, 76% of middle-class workers are living paycheck to paycheck.

Meanwhile, many of these same middle-class Americans are carrying an average debt load of $84,000 - an increase of 161% from 1992. This personal debt increase has helped create a two-class society in America: "poor" and "wealthy."

Evidence Middle Class Is Shrinking No. 4: Lower-class wages fell, upper-class wages rose. While middle-class wages have remained stagnant, lower-class workers earn less every year...

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Between 1979 and 2013, the hourly wages of low-wage workers fell 5%, according to the EPI. In contrast, the hourly wages of high-wage workers rose 41%. And as far as the middle-class was concerned during this period of time - again, think "stagnant."

While the wages of middle-class workers did rise 6%, this increase occurred at just .02% each year. Furthermore, according to the EPI, "this wage growth, in fact, occurred only because wages grew in the late 1990s when labor markets got tight enough - unemployment, for instance, fell to 4% in 1999 and 2000 - to finally deliver across-the-board hourly wage growth."

Evidence Middle Class Is Shrinking No. 5:  People don't know how to refer to their financial status. According to a statement made by Dennis Gilbert, a professor of sociology at Hamilton College, to The New York Times on May 11, "people are looking for some way to say, 'I recognize I'm a little below the middle.'" That's because many people don't really know their financial "label" anymore.

You see, 51% of Americans identify as middle or upper-middle class, according to Gallup on April 28. That compares with an average of 60% who identified the same way in polls conducted from 2000 through 2008.

That's why, when 2016 presidential candidates talk about the middle class, you'll notice this tactic: They wax nostalgic to remind the public what the economy was once like and what it could be like again... so long as the right president takes office.

Maybe their new term for what used to be the middle class should be "below-the-middle class."

Find us on twitter @moneymorning.

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