Where the Middle Class Grows

June 9, 2018

The US economy is in the ninth year of expansion. This expansion is certainly notable for its duration- it is the longest expansion since the 1990’s. But this expansion will also likely be known for largely excluding the middle class.

 

Using American Community Survey data from the Census Bureau, we can see that this current expansion has resulted in growth in upper-income households and lower-income households while middle-income household growth was minimal.

 

For our purposes here, we are defining middle-income households as those making between two thirds of the median household income and 2 times the median household income. Using this criteria we get a middle-income definition of $38,027 to $115,234 in 2016 for the US. With such a broad definition, you would think a large number of households would fit into it, and they do. In 2016, 45.6 percent of households fall into this definition of midde-income. This is down from 47.6 percent in 2006. Still, the classic bell-shaped distribution holds with the bulk of the households in the middle and fewer households on the lower-income and higher-income tails.

 

This bell shape reverses itself and becomes “U-shaped” when we look at the change in households by income group between 2006 and 2016. Middle-income households accounted for just 15.6 percent of total household growth over this period. The number of high-income households increased by 45.6 percent and low-income households by 38.8 percent.

 

 

 

This should be an alarming development. The US economy works so well because its participants all believe that upward mobility is achievable if they work hard. Yes, it is great that we are adding higher income households, but it appears that we are heading to a situation where many people don’t have reason to believe that there is a pathway to better life.

 

Is this disturbing trend consistent throughout the largest metros areas as well? We recalculated the income breakpoints for each metro individually and the answer is a clear “no”. Several metros have strengthened the classic bell-shaped income distribution. Denver leads the way. It added 145,691 households between 2006 and 2016. Of this growth, 81,042 (56 percent) were middle-income households. Denver also grew by 41,163 lower-income households (28 percent) and 23,486 high-income households (16 percent).

 

 

 

At the other end of the scale, the Providence metro saw overall household growth of 8,830, but actually lost 13,086 middle income households. It did see increases in low-income (11,547) and high-income households (10,369).

 

 

 

It seems in Denver, there are ample opportunities to advance to or maintain middle-class status, but increasingly, in Providence it seems you either won or lost.

 

There is an interesting geographic pattern when looking at how middle-income households fared throughout the country.

 

 

The country essentially breaks down into 4 regions (Northeast-Great Lakes, the South, the southwest and the Northwest-mountain). With few exceptions, the middle class retreated in the Northeast-Great Lakes and Southwest but did relatively well in the South and Northwest-Mountain regions. Note: the Detroit metro is removed from this map as it lost overall households.

 

More research will need to be done to find out why such a pattern exists, but here are a few potential causes.

  • Loss of traditional middle-income industry. We have seen overall decline in manufacturing employment in the Great Lakes region as well as throughout the country. If these jobs are being replaced, it is usually with lower paying work.
     

  • Decline of Unions. Related to the loss of manufacturing jobs, unions have also lost some of their muscle. According to the Bureau of Labor Statistics, the union membership rate in the US declined from 20.1 percent to 11.1 percent between 1983 and 2015. Historically, unions have been successful in securing higher wages for their members.
     

  • Housing costs. The map clearly shows that the middle class is growing where home prices are more moderate. It is becoming extremely difficult to own a home on a middle-class salary in high-cost places like San Francisco or New York. The dream of home ownership is very much alive however in other metros, especially in the South.

 

We have all seen how the current economic expansion has been concentrated in a few metros. In some of these metros, the economic gains have appeared to flow to the top of the income spectrum. But for our communities to be truly successful for the long run, they will need to provide more opportunity to get ahead.  You need both career opportunity and affordability to be a place where the middle class can grow and thrive.

 

This is clearly is a complicated issue and it is definitely worthy of further analysis. The data used in this post can be found here.
 

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