Analyzing data from the Panel Study of Income Dynamics, a long-running survey of U.S. households, the Pew Charitable Trusts’ Economic Mobility Project found that as of 2000-08, 86 percent of Americans who grew up in a middle-class household had a higher income (adjusted for inflation) than their parents. This share has surely decreased in the years since, but probably not by much: Median household income fell by just $1,500 between 2008 and 2010.
Moreover, income changes alone don’t capture the enhanced quality of life that stems from greater access to information and entertainment through personal computers, smartphones, the Internet and cable TV; advances in medical care such as MRIs and new surgical techniques; and more choices for all kinds of goods and services.
2. All the middle class needs is a return to solid economic growth.
During the three decades after World War II, the U.S. economy grew rapidly, and so did the incomes of middle-class households. So, if we just get our economy growing at a decent clip, will all be well for the middle class?
Sadly, that’s wishful thinking. Since the 1970s, the American economy has continued to grow fairly quickly, yet the middle class has seen a relatively small gain in income. Between 1979 and 2007, two peak years in the business cycle, the country’s per capita GDP increased by 50 percent. During that same period, the average income of the middle three-fifths of households rose by less than 30 percent, from $44,000 to $57,000, according to calculations by the Congressional Budget Office. The richest Americans have gotten a bigger share of the income gains from economic growth, leaving less for those in the middle.
Wage levels in the middle and below have barely budged since the 1970s because of a barrage of shifts in our economy and economic institutions — from globalization and technological advances to the decline of unions and new corporate practices that emphasize value for shareholders. Most of the increase that did happen in middle-class incomes was not because of rising wages but because households added a second earner.
For a while, slow growth in incomes was offset in part by expanding wealth, thanks to rising home prices and stock values. From 1989 to 2007, according to the Federal Reserve, the net worth of the median American family jumped from $79,000 to almost $127,000. But then the housing bubble burst, and the entire gain disappeared. By 2010, median family wealth had fallen all the way to $77,000.
3. Once you reach the middle class, more income doesn’t make you any happier.
In the mid-1970s, economist Richard Easterlin posited, based on a pattern he observed across nations, that income boosts happiness only to a point, after which it yields no further benefit. (His paper reverberated in academic circles and helped drive the development of economic research on happiness.) So, if slow middle-class income growth is of little consequence to our subjective well-being, why should we fret about it?
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