Where Has the Middle Class Gone?

During 2010, NY Times journalist David Brooks expressed a timeless description of the middle class:

“To be middle class is to have money to spend on non-necessities. But it also involves a shift in values. Middle-class parents have fewer kids but spend more time and money cultivating each one. They often adopt the bourgeois values — emphasizing industry, prudence, ambition, neatness, order, moderation and continual self-improvement. They teach their children to lead different lives from their own, and as Karl Marx was among the first to observe, unleash a relentless spirit of improvement and openness that alters every ancient institution.”

However, defined by income, the middle class has been shrinking.

Let’s take a look.

The Shrinking Middle Class

In the U.S.

During the past 50 years between 1971 and 2021, the American middle class has shrunk. According to a Pew Research analysis, the share of middle class households has diminished from 61 percent to 50 percent.

But where did the middle class go?

The good news is that many multi-earner households moved upward: More than their single counterparts, multi-earner households with partnered adults climbed the income ladder. With low income on the left (aqua), then middle (gold) and high (green), the following graphic displays the shifting percent of adults in each income tier:

The bad news though is that inequality grew. Up from 6.3, in 1970, by 2020, upper income households had 7.3 times the median income of those in the lower group:

Globally

Moving from the U.S. to the world, we see even more of a shrinking middle class in developing nations.

Titled. “From Middle Class to Poverty: The Unequal Impacts of the COVID-19 Pandemic on Developing Countries,” a February 2023 World Bank working paper presents the estimated decline of the global middle class in developing countries. Focusing on 15 countries, then five, and finally on Brazil, they look at employment and income projections and then actual outcomes. Summarizing through a five country sample, they told us that, “Overall, the 2020 pandemic resulted in a decline of the middle class and an increase in poverty in all five countries. However, the pattern of impacts across the distribution varied across countries, with no clear pattern.” In economic terms, the distributional impact of the pandemic on the developing world was considerable.

Our Bottom Line: Defining the Middle Class

Initially different from David Brooks, when Brookings defined the American middle class in 2018, they used “cash, credentials, and culture.”

Cash

If we limit our definition to money, middle class still has several meanings. The problem is deciding whether to look at a median or at quintiles. It is also possible to focus on the distance from a poverty line or purchasing power.

Even here, though, there are more possibilities. We have not specified if we mean disposable income or when household size makes a difference.

Among many, these are three definitions:

Credentials

The credential approach takes us to education and occupation. For education, we can use criteria that relate to years of school and one’s highest degree. Scholars have then categorized people with “less than a college degree” as working class but Brookings was quick to point out that most American don’t believe you need a college degree to be considered middle class. And next, adding occupational criteria, we might distinguish between employees with a labor contract (working class) and those with a “service relationship.”

Culture

While our third possibility lets us self-define, it also touches attitudes and behavior. Citing home ownership, family vacations, and a college education, a 2010 Commerce Department definition emphasizes our aspirations.

My favorite definition, culture returns us to where we began with David Brooks. Forgetting the numbers, we are all middle class.

My sources and more: Published approximately when econlife began, David Brooks expressed his definition of the middle class. Much more recent and always handy for current issues, Pew had the details on the shrinking middle class, here and here. But a World Bank paper was the most up-to-date. And finally, do try to complete the middle class picture by returning to our look at the plight of the middle class last April. Please note that we’ve quoted middle class definitions from a previous econlife post.