Academic journal article Monthly Labor Review

The Declining Middle-Class Thesis: A Sensitivity Analysis

Academic journal article Monthly Labor Review

The Declining Middle-Class Thesis: A Sensitivity Analysis

Article excerpt

New study supports the hypothesis of a shrinking middle,the declining proportion of families in the middle has largely moved to the upper class, although the share of income held by the lower class has declined

In recent years, there has been considerable interest in the changing distribution of income in the United States. The consensus within the literature is that the distribution has become more unequal over the past one or two decades, as evidenced by several measures of income inequality.' In addition, a number of studies point to increasing proportions of the population in the lower and upper income classes, and thus a decreasing share in the middle class, as evidence of this trend.

Across these studies, however, opinions differ as to the extent to which the middle class has declined and how this decline has been divided between the lower and upper classes. The lack of agreement among findings can be attributed to variations in both the definition and measurement of the middle. Indeed, most studies fail to test the sensitivity of the results to alternative specifications of the middle class and to different techniques for measuring its size over time.

This article describes the nature and results of such a sensitivity analysis. Data on family income from the March Current Population Survey are used to track changes in the proportions of families in the lower, middle, and upper income classes over the 1969-86 period. By choosing alternative income intervals for defining the three classes, evaluating different methods for measuring changes in class size over time, and examining these changes from both a secular and cyclical perspective, the sensitivity of the findings is assessed. Through such sensitivity analysis, we attempt to reconcile the divergent views on secular changes in the size of the three classes over time. Although the underlying causes of the shifts are important, we do not attempt to identify them.

Consistent with the results found in the literature, we find that the proportion of families in the middle class has declined substantially over time. However, in contrast to many studies, we conclude that the majority of the decline in the middle is offset by an increase in the upper class. It is important to note that our findings do not run counter to arguments of growing inequality in the distribution of income. Indeed, in terms of its share of aggregate income, there has been a growing disparity between the lower class and the remainder of the distribution.

Overview of the literature

A brief review of a few examples from the literature demonstrates some of the differences between studies, both in terms of overall approach and conclusions drawn..sup.2 For instance, Lester Thurow defined the middle class as including households with income between 75 and 125 percent of median household income, and found that the middle shrank from 28 percent of all households in 1967, a business cycle recovery year, to 24 percent by 1982, a trough year. The loss was evenly distributed between the lower and upper tiers..sup.3

A study by Robert Lawrence concentrated on the weekly earnings of wage and salary workers who usually work full time. Lawrence set the middle-class bracket at roughly two-thirds and four-thirds of men's median weekly earnings in 1983. Under this concept, the proportion of all workers in the middle fell from 50 percent to 46 percent between 1969, a peak year, and 1983, the first year of a recovery. Most of the loss was accounted for by a widening of the lower class, which expanded to 33 percent of all persons..sup.4

Katharine Bradbury, using family income to define the middle class, suggested that a reasonable definition of the middle class includes all families with incomes between $20,000 and $49,999, in 1984 dollars. After deflating this interval back to 1973, a peak year, she found that the middle class declined from 53 percent to 48 percent of all families by 1984, the second year of a recovery. …

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