As Income Inequality Rises, America’s Middle Class Shrinks

Source: Keith Miller and David Madland, Center for American Progress, December 18, 2014

America’s middle class is struggling. As recent economic data show, middle-class household incomes remain stagnant at a near-25-year low, and the share of the nation’s economic gains going to the middle class has fallen to near-record lows. Meanwhile, the costs of middle-class essentials—such as child care, higher education, health care, and housing—have rapidly increased. Beyond these well-documented facts, however, another long-term trend affecting the middle class has received somewhat less attention: As income inequality has steadily grown in the United States, the actual size of America’s middle class has shrunk.

A commonly used method to assess the strength of the middle class is to look at the nation’s overall income distribution and evaluate how a predetermined portion—for example, the middle 20 percent or middle 60 percent—is doing on a variety of indicators, such as what percentage of the country’s aggregate income it takes home or how its median wealth has changed over time. But an alternative method is to try to actually measure the share of Americans earning what can be considered a middle-level income. This is an income that falls within a set range of the national median—the income level that separates the top half of earners from the bottom half—which would identify a household as being middle class.

This analysis uses a range of 50 percent of the national median income—the same range used by Princeton economist Alan Krueger when conducting a similar analysis—and looks at all households between the ages of 25 and 64. This means all working-age households earning incomes between 0.5 and 1.5 times the national median will be considered part of the middle class. In 2012, this range spanned between roughly $30,000 and $90,000.