From retirement to health, how the
struggle plays
out in everyday life
By DAVID FRANCIS, October 16,
2012
The decline of the middle class
has become a focal point of this year's presidential election. Each candidate
claims their plan would put an end to the middle-income slide that accelerated
during the Great Recession and still shows no signs of abating.
But lost in the rhetoric about
the decline of the middle class is the reality of the decline. Nearly everyone
is aware that the middle class is struggling, but few understand how the
struggle plays out in everyday life.
According to experts, the decline
is fundamentally reshaping the U.S. economy. The Great Recession has affected the
way the middle class feels about higher education, government, and the future.
Even their health has suffered as a result of the decline.
"Their economic future isn't
very bright," says Timothy Smeeding, director of the Institute for
Research on Poverty at the University of Wisconsin—Madison. "Wages and
income are flat. Transportation, childcare costs, and healthcare costs are
going up, and your income isn't."
Smeeding calls the current state
of the middle class "the squeeze." Even people who have jobs are
being forced to squeeze more and more out of their income, despite the fact
that incomes aren't growing. "These people live on earnings. They're
working on not great wages and their jobs are threatened," he says.
"They don't see any hope in the future of things getting better."
By the numbers. Hard
numbers paint a stark picture of the middle-class decline. According to an
August 2012 Pew Research Center report, only half of American households are
middle-income, down from 61 percent in the 1970s. In addition, median
middle-class income decreased by 5 percent in the last decade, while total
wealth dropped 28 percent. According to the Economic Policy Institute,
households in the wealthiest 1 percent of the U.S. population now have 288
times the amount of wealth of the average middle-class American family.
The income decline has caused
many people to accumulate high levels of debt. And as the cost of college
increases, more people are saddled with tens of thousands of dollars in student
loans after they graduate.
Only 23 percent of people were
confident they had enough money to get them through retirement, according to
the Pew report. It also found that fewer people believe hard work will get them
ahead in life.
"You have far less
disposable income and increasing levels of debt," says David Madland,
director of the American Worker Project at the Center for American Progress.
"You have this fundamental squeeze on most members of the middle class.
It's impacting their quality of life and their outlook for the future."
Behind the numbers. These
are the kind of statistics used by politicians to sell policies, but they tell
little about the realities behind the numbers—or how the decline of the middle
class plays out in people's everyday lives.
More and more middle-income
families are turning to government programs such as food stamps, Medicaid, and
unemployment insurance. According to a recent Senate Budget Committee Report,
"Among the major means tested welfare programs, since 2000 Medicaid has
increased from 34 million people to 54 million in 2011 and the Supplemental
Nutrition Assistance Program (SNAP, or food stamps) from 17 million to 45
million in 2011. Spending on food stamps alone is projected to reach $800
billion over the next decade."
People are also saving less. Wage
increases have not kept up with increases in the cost of living, forcing people
to dig deeper into their savings to make ends meet. Meanwhile, many
middle-class workers who lost their jobs during the recession remain
unemployed.
"The most pressing worry is
the diminished economic security of middle-class families. The long-term
unemployed have completely drained their savings," says Kristen Lewis,
co-director of Measure of America, a project of the Social Science Research
Council that explores the distribution of opportunity and well-being in the
United States. "Those who are working have jobs without healthcare or sick
leave. They have no retirement savings plan. There's no end in sight to
that."
Lewis adds that the economic
state of the middle class takes its toll on their health. A series of recent
reports found that life expectancy for whites without a high school
diploma—once the backbone of the middle class—has dropped faster than for other
groups. The reports linked the decline in large part to the lack of access to
healthcare.
Can the middle class come
back?
According to Lewis, current economic and political conditions
won't provide the middle class with the same security it needed to rebound in
the years following World War II. "In the post-war period, there were a
lot of programs put in place to help people," such as education and
homeownership assistance, says Lewis.
Madland says increasing the
minimum wage and improving entitlement programs like Social Security are key to
rebuilding the middle class. "[After the Great Depression], we made major
policy changes to ensure we have a strong middle class. We let too much of it
wither on the vine," he says. "We need something approaching that
kind of effort."
But for Wisconsin's Smeeding, one
thing has to happen before these policy changes can occur: "We have to get
the economy growing again."
Where Do You Fall in the American
Economic Class System?
Many people
have misconceptions about their
place in the income hierarchy
By DAVID FRANCIS, September
13, 2012
The Census Bureau announced
Wednesday that median household income in the United States had fallen to
$50,054, the lowest since 1996 and down 1.5 percent from 2010.
The announcement was the latest
in a series of indicators that shows American households are making less than
they have in the past. Median household income is defined as the dividing line
for U.S. incomes—half of Americans make more than the median, while half make
less.
The drop will also have an impact
on politics. Republicans will use it to sell the idea that President Barack
Obama isn't doing enough to improve the economy. And in an election that is
focused on the economy, it's likely that median income, along with other terms
like "middle class," "low income," and "the wealthy"
will be used to convince Americans to vote a specific way.
But according to experts and a
large body of research, many Americans aren't aware of which one of these
categories they fall into. Many believe they are better or worse off than they
actually are, and have misconceptions about how other classes live. These
misconceptions can lead people to vote against their economic interests, and
often perpetuate policies that make it nearly impossible to climb the economic
ladder.
"People form beliefs based
upon the data they gather informally, and do not have the benefit of looking at
a random selection of the population," says W. Bentley MacLeod, an
economic professor at Columbia University. "The real issue is whether it
matters or not. That depends a bit upon whether or not people feel they have
the power to change their lives."
Understanding poverty, the
middle class, and the upper class.
According to the Census Bureau,
46.2 million people—about 15 percent of the U.S. population—currently live
below the poverty line, or the income level needed to make a bare-essentials
living in the United States. This figure depends on a number of factors, but is
currently calculated to be an annual income of $23,050 for a family of four.
The next level of income is the
middle class, a broad category that captures the vast majority of Americans.
It's also controversial: Scholars and studies define sections of the middle
class differently. But there are similarities between nearly all
classifications.
The working class falls at the
lowest end of the middle-class spectrum. These workers are employed in
blue-collar industries or are paid by the hour. They typically have lower
levels of education.
Next is the lower-middle class,
which is primarily comprised of lower-level, white-collar workers. These
workers typically have college educations, but lack the graduate degrees needed
to advance to higher levels of employment. Income for these workers generally
falls between $32,500 and $60,000.
Upper-middle-class workers
typically have post-graduate degrees and work at high-level, white-collar
positions. Household income for these workers is often above $100,000.
According to the Census bureau, upper-middle-class, or professional class
workers, earn enough to be in the top one-third of American incomes.
The next income level is what is
commonly called the "5 percent," or the percentage of Americans who
make more than $150,000 annually. At the top of the economic ladder is the
so-called "1 percent," or households that earn more than $250,000
annually.
Perception vs. reality. According
to Robert Gordon, a social sciences professor in Northwestern University's
economic department, few people are truly aware of their place in the economic
hierarchy.
"People have only a vague
idea of their income, based primarily on their income-tax returns, if they are
filers," he says. "If they are not filers, they are in a large lower
group that has only a vague idea of what their income is."
Gordon adds that lifestyles can
also be deceptive in understanding economic class. "A large majority of
Americans live in the outer fringes of cities, suburbs, and exurbs. Theirs is a
life of low density and backyard barbecues. Many more people today compared to
five years ago are having trouble paying the mortgage on this lifestyle, but it
doesn't change their feeling that they are living a middle-class
lifestyle," he says.
"It takes a long time for people
to change their view of what class they're in," Gordon says. "That's
especially true since the current definition of middle class is so broad that
it excludes only the top 1 or 2 percent and the bottom 10 or 20 percent."
Gordon says popular culture also
limits understanding of class, reinforcing the idea that all people are in the
middle.
"Sixty years of universal
television-watching has fostered the idea that everyone is in the middle class.
Most TV sitcoms are about people like us, except sillier," he says. "
There's very little media portrayal of a truly upper class that would make the
vast middle feel that they were in some different sphere."
The Real Source of Middle-Class
Money Woes
Income and
net worth are two key determinants of
how Americans feel about their own
finances
By KIMBERLY PALMER, September
12, 2012
There are many reasons
middle-class Americans feel squeezed right now: The high unemployment rate (8.1
percent), rising cost of college tuition, or the fact that close to one-third
of homeowners are underwater. But it's a combination of three other factors
that led the Pew Research Center to label the 2000s a "lost decade"
for the middle-class: declining household income, shrinking net worth, and a
smaller middle class.
"Income peaked in 1999 and
it has not yet returned to that peak," says Paul Taylor, coauthor of the
report and executive vice president of the Pew Research Center. "It's the
first decade in modern U.S. history where that's the case," he adds.
While income tends to be more
volatile as people lose and gain jobs, Taylor says net worth is also a valuable
measure of financial security, because it indicates whether people are able to
afford an unexpected medical bill or other unplanned expenses. "It's
enormously important to people's sense of economic well-being," says
Taylor.
Pew measured the size of the
middle class by defining it as those earning between two-thirds and double the
national median income. Around 51 percent of Americans fell into that category
in 2011, compared to 61 percent in 1971. Taken together, these numbers show
that "the middle has gotten poorer and smaller," says Taylor.
Survey respondents' perceptions
of the economy and their own well-being also reflect those negative numbers.
Among middle-class adults, 85 percent said it was more difficult now than it
was 10 years ago to maintain their standard of living, and most respondents
also agreed that "It is more difficult to get ahead today than it was 10
years ago." Meanwhile, the majority of middle-class respondents said they "had
to reduce household spending in the past year because money was tight."
Respondents also estimated that
it takes a household income of $70,000 a year for a family of four to live a
middle-class life. (Pew estimates that the median income for a four-person
household is just under that figure.)
Young people had a particularly
rough decade. Their income declined and a greater share are unemployed now than
10 years ago. In addition to the challenging job market, Taylor points out that
the housing market was rough on young people as well. Many of them bought their
first homes at bubble prices, and then watched as those homes lost value, and
in many cases became worth less than the money owed on them.
"That's affected people of
all ages, but older adults tend to have purchased their houses longer ago,
already paid of their mortgages, and purchased at pre-bubble prices,"
explains Taylor.
Young adults, in fact, were the
only age group where the percentage of people who describe themselves as
"middle class" declined between 2012 and 2008. In 2012, 4 in 10 young
adults labeled themselves "lower class," compared to just 1 in 4 in
2008.
Adults age 65 and older fared
best over the last decade; their income grew the most—10 percent—between 2001
and 2011. Taylor attributes that to the fact that many sources of income for
older Americans, such as Social Security and proceeds from retirement accounts,
are fixed, so they are relatively immune to economic swings.
Still, Americans have managed to
retain their optimism, especially over the long term. Most respondents said
their own standard of living beats that of their parents at the same age. Given
the growth in income over four decades, that statement rings true: Since 1970,
median household is up 32 percent. "Over the long haul, in the long arc of
their lives, Americans are doing better, but they had a very bad decade,"
says Taylor.
Respondents also drew a distinction
between their own personal finances and those of the country, and they tended
to be more optimistic about the former. More Americans believe their children's
standard of living will be better than their own than believe it will be worse
(43 percent versus 26 percent).
"It's a phenomenon in survey
research: 'The world is going to hell, but I'm doing okay,'" says Taylor,
adding, "It's hard to beat the optimism out of the American public."
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