Thursday, December 10, 2015

The Facts Behind A Disappearing Middle Class

Today, a number of media outlets have been discussing the disappearing middle class. The report was released by the Pew Research Center and notes, in 2015 21% of households comprise the top two income tiers, with Pew defining as more than twice the nation’s median income or at least $126,000 a year for a three-person household, which is up from 14% in 1971. For the bottom two income tiers, a three-person household earning $42,000 a year or less, in 1971 25% of households were in the lower two earning tiers versus 29% in 2015. The media outlets failed to provide detail around the cause behind this change.

Below is select commentary from the website Political Calculations and the author's article, Solving the Mystery of the Disappearing U.S. Middle Class, which provides detail behind this shrinkage in the middle class. With the ranks of both the lowest and highest income earning American households simultaneously increasing as the ranks of middle income earning Americans have become depleted. But who were the biggest winners and losers?"
  • "The biggest winners since 1971 are people 65 and older. This age group was the only one that had a smaller share in the lower-income tier in 2015 than in 1971. Not coincidentally, the poverty rate among people 65 and older fell from 24.6% in 1970 to 10% in 2014. Evidence shows that rising Social Security benefits have played a key role in improving the economic status of older adults. The youngest adults, ages 18 to 29, are among the notable losers with a significant rise in their share in the lower-income tiers."
"What the Pew Research Center's analysts were seeing in the 'hollowing out' of the U.S. middle class wasn't the result of some nefarious cause, but rather the inevitable result of the changing age demographics of the U.S. population. More specifically, the differences in the size of the living population of the U.S. by generation. The chart below shows the number of Americans born, whose births were registered, in each year from 1909 through 2004, while also indicating their generational grouping."

From The Blog of HORAN Capital Advisors

The next chart below provided by Political Calculations shows the income distribution by the last three generational groups.

From The Blog of HORAN Capital Advisors

The article notes,
  • "What we see is that Baby Boomers, who would be Age 51 to Age 69 in 2015, occupy the ranks of the highest income earners in the U.S., while Millennials, who would be Age 16 to 33 in 2015, occupy the ranks of the low end of the income earning spectrum."
  • "Meanwhile, we see that the much smaller Generation X finds itself sandwiched between these two larger generations in the ranks of the middle class."
  • "Is it really any wonder then that the number of middle class households has shrunk as it has while the apparent income inequality among U.S. households has increased?"
"The mystery of the disappearing U.S. middle class is solved - the apparent movement of Americans toward the "economic extremes" is primarily the result of the changing age demographics of the U.S. income earning population (emphasis added)! Now, if we could just get a better class of journalists to dial down their overly excited and poorly considered emotional hyperbole...."

Additional detail can be found by reading the entire Political Calculations article.

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