A. Sinan Ünür
August 22, 2008
Would I be exaggerating if I said that we hear often about the shrinking middle class?
Most people think of the middle of the income distribution when they think about the middle class. I have never been fond of this income-based definition as families with similar incomes can have wildly different wealth levels. But, I will stick with that definition since that is what most people have in mind.
The middle 20% of the income distribution of U.S. families was between $47,000/year to $71,000/year in 2006. The cut-off for the top 20% was at $109,000 and the cut-off for the top 5% was at $191,060. As a reference, 20 years ago, the middle 20% of the family income distribution was between $42,879 to $63,052 in 2006 dollars. Forty years ago, it was between $36,207 to $49,400 in 2006 dollars. So, the middle class has been getting richer over a long time period in terms of real purchasing power.
In fact, the increase in the wellbeing of families over such time periods is even more than that when you take into account the simple fact that the quality of what you can buy with that money has increased. For example, according to FordPinto.com, the price of a 1971 Ford Pinto (arguably one of the worst cars of all time) was about $10,000 2006 dollars (calculated using BLS’s inflation calculator).
The following graph shows how the middle 20% of the U.S. family income distribution has moved in the post Second World War era data provided by the U.S. Census Bureau.
This looks pretty good to me: Some in today’s middle class have more income than some families in the top 5% of the income distribution 60 years ago. So, the middle class is getting richer.
Where does all this talk about “shrinkage” come from then? I might be able to illustrate that using the following graph using another table published by the Census Bureau:
In 1967, 47% of U.S. families had incomes between $35,000 to $74,999 and only 12.7% of families had incomes greater than $75,000 (again, in 2006 dollars). In 2006, the proportion of families in that middle range of $35,000 to $74,999 fell to 34%. Clearly, in that sense, the middle class is shrinking.
Is this a bad thing? Well, it would be, if the proportion of poor were increasing. In 1967, 40% of families had incomes less than $35,000/year. In 2006, the proportion of families with incomes less than $35,000/year stands at 28%.
The most striking among all that is revealed by this graph is the fact that, compared to only 12% of families in 1967, in 2006, 37.7% of families had incomes greater than $75,000.
This is a story of amazing success.
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