Washington Post business columnist Steven Pearlstein was online Wednesday, May 30 at 11 a.m. ET to discuss the disappearing middle class.

Read today's column: Fair to Middling in the Middle Class.

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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The New Reality: I think the most petrifying part of life today is the need for a substantial amount of cash on hand for an unexpected crisis.

I think that life is getting so expensive that you have to think about what "could" happen and make sure you are covered with significant (to you) amounts of cash on hand (easily accessible) and great insurance coverage. If that means you have to save a lot of your income and bonuses for years while living in a modest home, avoiding having kids, no cable, clothes on sale, etc. then that is just the way it has to be.

Steven Pearlstein: I would hope that not having kids isn't a common economic choice. But your point about having a savings account to handle the unexpected bad things that happen is something many people forget.

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Laurel:"And when he does, it turns out that the median income for the "typical American family" jumps to $63,000, which in most parts of the country buys a pretty comfortable middle-class lifestyle."

But are $63,000 jobs available in the same places where $63,000 buys a comfortable lifestyle? I know I'd be pretty well off taking my $95k GS-13 job and moving to Arkansas, but my employer's telecommuting plan doesn't extend that far. (Then I'd actually be well off.)

I know that when calculating the cost of living, housing prices are not included in the calculation. They use a "rental equivalent" and treat the house purchase as an investment. This prevents housing prices from distorting CPI.

But it also doesn't take into account very big regional differences in real-life living costs. The cost of living is very strongly dependent on the ability to earn a living.

Steven Pearlstein: This is an age old problem that we'll never fully solve. In theory, of course, if a region gets too expensive, it gets uncompetitive and businesses move their operations elsewhere. But in reality, things are sticky. Businesses have their local networks of suppliers and customers that they don't want to uproot. People don't want to uproot. So relative prices are slow to smooth out.

By the way, rental equivalent isn't totally unrelated to house prices. Rental and owner-occupied housing are, to a degree, substitutes for each other, so the price of th the one affects the other. Also. the price of land is included in both, which is a big factor in overall price of a house in hot markets.

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Manassas, Va.: Hi, Dr. Pearlstein:

Are illegal immigrants included in this study? After all, most of them are vastly poor and would lower the average US earnings per year.

Steven Pearlstein: I believe the study, based on a census survey, includes all workers living here.

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Columbia, S.C.: Why is it that each time we have a republican president, the income gaps widens to a high heaven?

Steven Pearlstein: Please, let's not blame this on Bush. It is a longterm phenomenon that spans many different presidencies and, in fact, many countries. It is a private sector phenomenon. The data in the article is also pre-tax data, which means it is before the effects of the Bush tax cuts.

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South Riding, Va.: How much of a role do the expenses related to modern technology impact the shrinking middle class. Even if my income has managed to keep up with inflation, I have many more expenses today than I did last year. I realize, that I may be able to live without a subscription to Netflix, Tivo, Digital Cable, cellular service with text messaging, and DSL internet access to name a few items. With the new technologies, also comes the need to pay for credit reports and credit monitoring to watch for signs of identity theft.

Steven Pearlstein: Not a big factor, sorry. Technology also allows you to save money and improve your standard of living. Otherwise, you wouldn't buy it.

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Dayton, Ohio: A recent report, "Economic Mobility: Is The American Dream Alive and Well?," (an initiative of the Pew Charitable Trusts: http://www.economicmobility.org/) raises concerns regarding the "... continuing ability of all Americans to move up the economic ladder" and calls into question whether the American economic meritocracy is still alive and well. Your comments regarding economic mobility in the United States? Thank you.

Steven Pearlstein: There are some studies that show a slight decline in mobility, within a generation and among generations. It is a worry, particularly if education, personal connections and certain social skills are a big determinant in economic success, and if attaining these is determined by what schools and universities you go to. That's why keeping public school systems attractive to everyone is important, because they are an essential part of an equal opportunity and meritocratic society. If wealthier people can use their money to assure their kids get into the best educational tracks through private schools, whose graduates get a disproportionate number of places in the best colleges, whose graduates in turn get disproportionate numbers of places in the best professional and graduate schools, then we've got a problem.

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Arlington, Va.: Whoa, wait a minute. Since when did $90,000 become the upper limit for middle class? The problem with defining the middle class is that it doesn't factor in where you live. My husband and I make just over six figures combined, but there's no way anyone would peg us as upper class, especially living in this area, where we have $200k in student loan debt and can't even afford the mortgage on a two-bedroom condo. Sure, if we lived in Omaha or Topeka, we'd be sitting pretty, assuming we could find jobs that paid the same there. So where do we fit in? Late-20s, graduate degrees, drowning in student loans, priced out of the housing market like most first-time buyers in this area, and hit with the marriage tax penalty. Yet because our income surpasses some arbitrary limit, we're not middle class? This is what scares me about a potential democratic President and Congress--they think I'm one of the "wealthy" who is ripe for a tax hike, yet nothing could be further from the truth. We're not poor, but we're not rich either. That's what I call middle class.

Steven Pearlstein: Hold on now. There is no precise definition of middle class, and obviously costs of living and wage rates vary widely by region. But if you are doing a national study, you have to use national data and use some cutoffs. It is not perfect, obviously. By the way, Democratic candidates don't think people who make $90,000 are wealthy. They generally come from the EAst and West coasts, so they know better.

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Lefty from Princeton: Again, I think you are missing the point. If you look at wealth inequality from an historical point of view, you will see that countries with a vast difference in the percent of wealth held by the upper 1 percent (say) as compared with the lower 90 percent (say) soon go down the tubes. The reason is that wealth translates into political power, and soon the country is making decisions that benefit the top 1 percent and not the country as a whole. This is discussed in detail in Kevin Phillips' "Wealth and Democracy." Since this is a feedback situation, it tends to happen and has at least started to happen several times in our history. The strength of America has been that just when the trend starts to enter the strong feedback stage, something has happened that redistributes the wealth. The rise of unions and FDR are two such examples. What we have to worry about is that the trend of wealth piling up in the top 1 percent or 0.1 percent is increasing and we see the country taking positions that benefit only the Rich. Two examples are taxing dividends and capital gains at a lower rate and the attempt to abolish the estate tax. I am sure you can come up with many more such examples.

Steven Pearlstein: That is a big danger, no doubt about it.

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Danvers, Mass.: If everyone did better at the same rate in the economy over time, their incomes would grow at GDP per capita rates. Inequality would not change. Everyone would do better than inflation.

Over the last 30 years, it is only the top 20 percent of earners who have done better than GDP per capita. The bottom 20 percent has not done as well as inflation.

This may help explain why Rose's middle class from $30k to $90k has shrunk and his high class has grown. With break even in this redistribution process at the 80th percentile, lots of people are falling behind, not behind inflation, but behind their neighbors.

Steven Pearlstein: As Rosen points out, you have to be careful about GDP per capita growth as the only benchmark. Changes in household size can can have a big effect on living standards, and that needs to be factored in.

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Alexandria, Va.: This past weekend I went to my nephew's graduation from Cornell. The president of the university gave the commencement speech about wealth inequality and how it was now the responsibility of these newly minted Ivy League graduates to solve the problem. One factoid so impressed him, he repeated it for emphasis. Namely, that the top 350,000 taxpayers in total made the equivalent of the bottom 1.5 million taxpayers. He asserted that this kind of severe stratification was unhealthy for American society. It wasn't clear if he was calling for somehow lowering the income of the top 350,000 or increasing the income of the bottom 1.5 million. In light of your column today, what's your take on that kind of analysis?

Steven Pearlstein: Not sure about the data, but I suspect the top 350,000 make more than the bottom 10 million, actually. He understates the problem. That said, this is the inequality that the labor markets are now producing, and you want to be careful about tinkering with that too much. You could make it possible for unions to organize again in the U.S. You could mandate health benefits and pension contributions. But the effects would be modest. The effects of globalization, consolidation, more intense market competition are such that they are producing big winners at the top of many industries, to a degree at the expense of everyone else. The only thing you might want to do is redistribute some of those winnings after they are made through the tax and benefit system.

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Southern Maryland: Middle class holding on.

Comparing my life to my parents, I am not doing as well. My father worked and my mother was a stay at home mom versus both of us working. Parents paid off their mortgage after 10 years versus our 30 year mortgage. Parents had more saved with old fashioned US Saving Bonds than we do with 401k, IRA's etc. Parents graduated from high school versus college educated children. We aren't trying to keep up with the Jones. We just want to do better than the previous generation not worse.

Steven Pearlstein: That may be true. On the other hand, you may have a bigger house, more cars, more televisions, more vacations than they did. You surely receive more health care than they did, because there is now so much more that medicine can do, which is a good thing, but costs money. So I wonder if you are really less well off.

One other point: there were large number of jobs for semi-skilled workers back in the 50s and 60s that paid solid middle class wages. These were companies that earned economic rents (high profits) because they operated in protected markets, and they shared these rents with workers (usually because unions demand they share them, but also because it was the norm of corporate behavior to do so). Now, the rents are gone, the unions are weak or gone, and the norms of corporate behavior are gone. And it is possible that, because of that, you did have a more comfortable life as a child than you do now.

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New York, N.Y.: Very interesting column today. Just a comment: I think that it is not only the acknowledged disparities (married, single) etc. that create the unease people have with the overall economic situation, but also the seeming precariousness of it.

If you're in your forties or younger, virtually everyone you know who is your age has experienced layoffs or lack of access to health care for one reason or another. Even my friends with high income professions and marital stability have experienced job loss and health care/insurance woes. Those setbacks may be temporary, but they leave a lingering angst that never goes away. They also leave financial scars, particularly debt. The upbeat analyses don't take into account the human phenomenon that once you've seen the shadow of the wolf at the door, you're afraid of wolves.

Steven Pearlstein: Fair point.

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Philadelphia, Pa.: My husband and I both have masters degrees and live close to a major city. I have noticed that compared to the 90s it has been more difficult to get a well paying job, despite our education. Specifically, my husband, who has a degree in HR, has been shuttling from one dead end job to another. No one wants to hire him because he is "overqualified" what should he do now to update his skills without leaving work for a long period of time? Also, why does it seem like jobs are paying less then they were in the 90s?

Steven Pearlstein: Jobs aren't paying less -- the economywide data is clear on that. But in some professions, there may be a situation where the number of jobs in the middle ranges has decreased, with more jobs above and more below. That's quite common. And perhaps you or you husband is in one of those job markets.

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Burke, Va.: Hi Steven, Very interesting article. I do have to question your conclusion made in the article, "And when he does, it turns out that the median income for the "typical American family" jumps to $63,000, which in most parts of the country buys a pretty comfortable middle-class lifestyle."

How do you define 'a pretty comfortable middle-class lifestyle"? What does that look like? I'd argue that in many more parts of the country than you allude to that even $63K doesn't make one "pretty comfortable".

Steven Pearlstein: Own a home. Have at least one car. Cable, air conditioning. Can take a summer vacation of a week or two, and visit the inlaws at Christmas. Can eat out once every couple of weeks. Obviously, this is all very subjective, and varies by region. But to say that 63,000 doesn't buy hardly anything is probably overstating things a bit.

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Charleston, S.C.: Years ago I read an article in The Economist about the characteristics of a third-world country, one of which was a small, ineffectual middle class, along with a small wealthy and powerful upper class and masses of poor people. Is this where we are heading? What has caused this? Merely natural progression or eight years of erosion of the middle class by Bush? Can we recover?

Steven Pearlstein: Look, can we drop the Bush thing here. It really is not adding to the discussion. He's wrong about not raising taxes on the very rich, he's wrong about inheritance taxes, but those are not the basic problem here. Let's stay focused, shall we?

Yes, what you describe is the typical developing country social model, which evolves over time as the middle class gets larger. But what is happening here is that the middle class is shrinking, but what we call the upper middle class is growing. If that is the basic story, I don't think we should call that a bad thing. That's a good thing. It would be better if the bottom were shrinking and more people graduating into the middle class. But its not like the middle class, as a whole, is falling down. To the degree it is shrinking, it is because people are falling UP.

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Capitol Hill: How do you reconcile Rose's findings with the recent report of the Economic Mobility Project (Morton and Sawhill) that American men in their 30s today are worse off than their fathers' generation?

Steven Pearlstein: I saw mention of that study but I haven't had a chance to read it in detail. I have one quarrel with it, namely that in today's economy, you would expect younger workers to earn less than younger workers of 30 years ago. That's because the wage scales were more compressed back then. As a result, the youngest and oldest workers were overpaid, the middle age workers were underpaid relative to their output, but if you stayed with the same company your entire career, it all averaged out. Today, nobody stays with the same company, and wages are more tied to productivity and skill at every age. So you might expect people under 35 today to be paid less.

Also, male wages have tended to correct downward as female wages have corrected upward. There was wage discrimination, and the women, in effect, used to subsidize the men. Now that this is correcting, male wages have been lagging a bit.

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Washington, D.C.: Steven: Early submittal that I hope you can answer. I'd be curious about the basis for Rose's data correction for the "typical American family." My understanding is the "typical" family is less typical now, due to more never married households (some with kids). I believe unmarried heads of households make up over half of households now. Thus, Rose's apples-to-apples comparison of "typical American" families misses the bigger story on income. I'd be curious about whether, in his complete book, he compares other, atypical households and how they have done over the past 30 years, especially accounting for government and employer-provided benefits. Thanks for considering this question.

Steven Pearlstein: He makes that important adjustment you refer to, for household size, that very much impacts standard of living. And by doing that, he gets a better way to compare living standards over time. So he does just what you want him to.

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Atlanta, Ga.: I must admit, when I saw the discussion topic: income gap, I thought: oh, no not another diatribe about how the middle class is shrinking and we have to do something about it (your fellow columnist, Robert Samuelson, has a great article on basically that topic, although it has to to do with gas prices, today).

The truth is, everyone does better, even when 'just' the top earns more. We are doing so much better than 20 or 30 years ago, when houses were smaller, people thought of certain things as luxuries (cable TV, the internet, cell phones). Also, clothes were MUCH more expensive. No one talks about that, or about how food was more expensive (even though prices have been rising lately, but really, not so much).

Honestly, most countries (all countries?) in the world have a much larger income/wealth gap. Nowhere near what we have.

Steven Pearlstein: Actually, other industrial countries have smaller income gaps because of unions, labor rules and social norms that frown on excess compensation and keep wage structures pretty compressed.

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Gaithersburg, Md.: Oops -- I don't know if my interrupted question got sent or what. Anyway, very simply -- I've seen stats showing that the median income adjusted for inflation hit a peak in the early 70s and been declining since. And I've seen lots of other measures showing that the separation between the top 20 percent and the rest of the population has greatly increased since the Reagan Revolution.

Steven Pearlstein: You can find a data set to prove almost anything, but as Rosen very carefully demonstrates, it is just not true that American living standards for the typical or median household haven't improved since the 1970s. Has the growth been unevenly distributed since then. Yes. But stagnant? That's overdoing it.

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Falls Church, Va.: You wrote: "the negative opinions that many Americans hold about the economy and jobs generally stand in sharp contrast to the opinions they hold about their own job and their own economic prospects."

Does this reflect media influence? Not so much an ideological bias, but just an institutional bias toward bad news seeming more newsworthy and therefore getting too much emphasis?

Steven Pearlstein: Maybe the press is guilty of some of that, yes.

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Raleigh, N.C.: Good morning! Very provocative, informative article. As a card-carrying liberal, I may have to re-think many of my positions on a variety of issues.

However, I think your article glossed over a very important issue, namely, income security. While the data you present on incomes are certainly good news, my perception is that the Dems' message resonates because the middle class lifestyle is less secure than it once was. That's due to the health care problem, internationalization of white collar jobs, etc. But it's real. Even if Person X hasn't been affected, he goes to church with Person Y who has been laid off or plunged into financial crisis by health care bills. So while Person X is doing pretty well, he's afraid of becoming Person Y.

I guess this isn't a question, but rather a comment intended to elicit a rebuttal.

Steven Pearlstein: Yes, the sense of economic security is less, and it is hard to pick that up in the economic data, but you do see it in the polling data on economic outlook.

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Washington, D.C.: Alan Reynolds recently wrote a column which showed that the top fifth's share of disposable income was 44.9 percent in 2004 - essentially unchanged from the 44.8 percent figure of 1993.

In a Feb. 6 Wall Street Journal article with David Henderson, he demonstrated that the top 1 percent's share appeared to increase only because the CBO incorrectly adds an unbelievably huge and rising share of corporate profits to top incomes. Even with that overestimate included, however, the top 1 percent's share of after-tax income increased from 8 percent in 1979 to 12 percent in 1988 and was still 12 percent in 2003. Is Reynolds correct?

Steven Pearlstein: Have no idea. But I think the data, on the whole, is pretty clear that the people at the very top have been running away with an increasingly disproportionate share of the productivity gains in recent years.

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New York, N.Y.: Steve, I generally agree with the premise of your article that the middle class is not caving in. However, what's changed over the last number of years is that many of us (middle class or not) are a few small steps away from real trouble. Serious health problems or a job loss could be a catastrophe.

With this in mind, its shameful that we spend our time and money giving tax breaks for private equity funds and for capital gains. By no means am I saying bleed the wealthy, but lets have policies that make some sense. Thanks!!

Steven Pearlstein: There's a lot we could do to make the tax code fairer and, in the process, redistribute some of that money going to those at the very top.

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Philadelphia, Pa.: RE: Falling Up

How much of this is wealth has been generated through the credit and real estate bubble? How quickly will those upper class fall back into middle class? And, how many in the middle class will fall to the bottom? As debt becomes more expensive I fear our increasing consumer-driven economy will show that the Democrats are not so far off the mark as the study suggests.

Steven Pearlstein: It is a worry worth having.

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Washington, D.C.: Steven, just wanted to thank you for a thoughtful analysis. It's great to see someone get beyond political rhetoric and examine the facts.

Steven Pearlstein: You're welcome.

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New York, N.Y.: What's with the Bush obsession? Steve, from your readers it seems like he's at fault for everything. I think one of the biggest risks to the middle class is the upcoming and inevitable crisis with Medicare, Medicaid and Social Security. And that's not even touching how the states are mortgaged up the wazoo for employee pensions and benefits.

Steven Pearlstein: That point about public employee pensions is one that most people are unaware of.

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Dupont Circle, Washington, D.C.: Hi Rick, In your column you write that Rose's research adjusted for the increase in spousal work hours -- but what of total work hours? Those two factors -- more women entering the workforce and everyone working longer hours -- I had thought were behind increases in household income. Also, increases in productivity have been huge recently, yet increases in wages not so huge, if measurable at all. How does one explain this conundrum?

Steven Pearlstein: There is a cyclical quality to the productivity story, so it is only late in the business cycle that the gains to workers show up in their paycheck. The lag, in fact, has been getting longer. So you are only now seeing wages (and benefits, dont forget them) rising. Whether the share of GDP going to profits will turn down toward the norn, we'll have to see. Right now it is at record levels.

Of course, that deals with the question of labor's share of output. Then there is the question of how labor's share is divided, and we have been talking today about how the share of the people at the very top has been rising. But its probably not true that NONE of the productivity gains have gone to the average worker. What is true is that less of it is going to the average worker than in the past.

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Bow, N.H.: Why remove households headed by a person under 29? There are, for better or worse, a lot of single women under 29 who have school-age children.

Steven Pearlstein: Obviously. The reason for removing them is that the "average" or "median" data is often used, in a political context, to talk about what's going on in the "typical" household of mom and dad and two kids (which, as you point out, represent a shrinking part of the mix). And so it is often useful to know what is going on in those typical households. That's the reson for segmenting the data like that.

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Okay, Okay, It's Not Bush's Fault: Can we at least blame Reagan?

Steven Pearlstein: Nice try.

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Silver Spring, Md.: As a technical person I love data but I think these discussions often lose the detail of wage income versus unearned income. Some folks like to keep the focus on wages (I'm thinking of flat tax proponents). But I would guess that the very wealthy have a lot of unearned income that is tougher to accurately tabulate (I'm thinking of all of that 'estate planning' that goes on).

If you're a family living paycheck to paycheck, it's harder to take advantage of the ultimate tax shelter (death). OK, I'll go back to looking for those family farms affected by the death tax.

Steven Pearlstein: Good point. Also, the data that Rosen uses doesn't include capital gains, which in recent years, is a big deal.

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Alexandria: Those jobs in the low-end of "upper class," aren't they the ones that expect uncompensated overtime? Are we better off after salaries are adjusted to actual hours worked?

Steven Pearlstein: Some people think not.

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Princeton, N.J.: Under Eisenhower the top marginal income tax rate was 91 percent and dividends and cap gains were taxed as regular income. Sweden has an overall tax rate of 50.2 percent and their GDP growth averaged 2.5 percent during the last 10 years. The corresponding figures for the US are 26.4 percent and 2.1 percent. I think it is clear what to do about wealth inequality.

Steven Pearlstein: If you mean raise taxes on the rich, I'm sure we need to do some of that. But if 50 percent is your upper limit, which seems to me a good one, adding 35 percent federal and 10 percent state gets you pretty close. Going back to 39 percent, as under Clinton, is probably the right idea.

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Laurel:"The only thing you might want to do is redistribute some of those winnings after they are made through the tax and benefit system."

But since the wealthy make much of their income through investments, shouldn't there be a way to structure the tax system so that investments that help middle-class Americans would be taxed less highly than investments that don't?

I mean, it probably helps the economy more to build a factory than speculate in foreign currency, so can't we try to encourage the "right kind" of investment income?

Steven Pearlstein: Nice idea in theory, but it probably won't work so well in real life. Tax systems are best when used to raise money efficiently and fairly, not "manage" the private economy or correct for market imperfections.

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Washington, D.C.: Hi Mr Pearlstein, I grew up here (lived here 32 years), and cannot afford to buy in the modest middle class neighborhood that my parents live in (they wouldn't be able to buy their house now, either). Both my husband and I have doctoral degrees (he's a PhD, I'm a DVM), and we are considering leaving this area so that we can find a house without an hour's commute.

My question is this--do you think in the long term that places (such as DC) are going to suffer a significant "brain drain" in the coming years because it is too expensive to live here? (or will there always be enough highly paid people to afford it?)

Steven Pearlstein: Probably will work the other way, actually. Washington is so expensive now because of housing costs that only those who earn big money will be able to live here. And that means higher education levels, not lower. I suppose it matters what advanced degree you have. A PhD. in classical literature probably will find Washington a very expensive place.

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Steven Pearlstein: That's all for today, folks. Hope to "see" you next week.

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