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An Upside for the Middle Class
Lost Amid the Stresses Are Gains in Standard of Living

By Michael A. Fletcher
Washington Post Staff Writer
Thursday, February 28, 2008

Sen. Hillary Rodham Clinton declares, "The economy is not working for middle-class and working families," noting the typical American family earns less now than it did seven years ago. Citing the same trend, her Democratic presidential rival, Sen. Barack Obama, promises "to put America back on the path to prosperity." Sen. John McCain, the likely Republican nominee, says, "It is harder for families to weather hard economic times."

The candidates' pitches are aimed at wooing the vast majority of Americans who consider themselves middle class. Those people tell pollsters that they are increasingly anxious about their financial security, a feeling that has intensified in recent years because of flattening wages, rising income inequality, increasing consumer debt, soaring health-care costs, spiraling energy prices and, now, declining home values.

But as Americans' wage growth has slowed, their rate of consumption has accelerated, leaving some economists dubious about claims that the middle class is worse off than before.

"There are clearly some challenges out there, and it is easy to worry. But it is a mixed picture," said Stephen Rose, a Washington economist who is writing a book about the middle class.

Median family income in the United States has decreased about $1,000 since peaking in 2000. The income decline came after more than a quarter-century of slow growth. Between 1973 and 2000, incomes increased at just a third the rate of worker productivity, a sharp break from the previous generation when family incomes and productivity both doubled, fueling an unprecedented expansion of the middle class.

The wage stagnation experienced by many Americans has been accompanied by a sharp growth in income inequality. After-tax family income for the nation's middle tier of wage earners increased 21 percent between 1979 and 2005, to $50,200. Incomes of the top 1 percent of wage earners, meanwhile, tripled, to just over $1 million, even as the after-tax income of the bottom fifth of income earners grew just 6.3 percent, to $15,300.

Rose says that if total compensation -- which includes the increasing cost of health and other benefits -- is included, American workers have done better than census numbers would indicate. Also, he said, upward mobility allowed 13 percent more Americans to earn inflation-adjusted salaries of $100,000 in 2004 than in 1979.

And while workers change jobs more frequently than in years past, they are less likely to be laid off than in previous years, said Steven J. Davis, a University of Chicago economist who recently concluded a study on the matter. Moreover, median household net worth increased from $69,000 in 1989 to $93,000 in 2004, pushed in part by an increasing home ownership rate.

Some analysts liken the plight of the middle class to an increasingly perilous high-wire act guarded by a steadily shrinking safety net: Americans pay for a steadily improving lifestyle by sending more family members to work and by juggling more debt. The savings rate, which topped 11 percent in the early 1970s, plunged below zero in 2005, as more people turned to credit cards and home equity loans to pay their way.

Items once considered luxuries -- dishwashers, central air conditioning, video cameras -- are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.

Americans are twice as likely to travel overseas than they were in 1980, and overall they spend more than ever for other recreation, including sporting events, movies and plays -- the mark of an ever-improving quality of life, some researchers say.

"The amount of leisure enjoyed by the average American has increased substantially over the past 40 years," University of Chicago researchers Mark Aguiar and Erik Hurst concluded in a recent study.

Citing that study, Heritage Foundation labor economist James Sherk wrote that the stereotype of the overworked American is mistaken. "Americans today can earn a good living while having free time to focus on their own pursuits," he said.

Few economists dispute that typical Americans have improved their standard of living in recent decades. What many worry about is whether they are squeezing themselves more than ever to sustain that lifestyle, as more of the benefits of an ever expanding economy accrue to those on the top rungs of the income ladder.

"To the extent that the middle class is consuming more than you expect given their income does not come without a price," said Robert Frank, a Cornell University researcher. "They are increasingly in debt and they are stressed out about it."

But it is not only lifestyle choices creating the pressure.

Home prices in suburban neighborhoods with good schools have increased sharply, meaning the median mortgage in 2004 was 76 percent larger than a generation earlier. The same goes for the cost of health care and college tuitions. By the time they graduated in 2004, two-thirds of four-year college students were in debt, up from less than half in 1993. They also owed more: an average of $19,200, a 58 percent increase over the previous decade, once inflation is factored in.

Meanwhile, smaller shares of families are covered by health insurance -- nearly 16 percent had no coverage in 2004, according to the census. Also, barely over half of Americans work for employers that sponsor retirement plans of any kind, while only about one in five is covered by a traditional pension as more employers have shifted to defined-contribution plans such as 401(k)s, according to some studies.

"The reason so many middle-income households feel anxiety is because of how much they are being squeezed by home prices, health care and education," said Tamara Draut, director of the economic policy program for Demos, a New York research and group. "Those are three things that we can't pare back."

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