Middle Three Quintiles

Every time I hear  the mantra about the disappearing  middle class, I want to ask if percentage of households in the middle three quintiles has changed. I am sure, many on Left out of ideological reflex would assure me that it has. Of course, the middle three quintiles of any distribution of income, or grades, or heights, by definition, will always contain 60%  of the sample.

Mathematically literate people of any ideology quickly recognize this truth about the fraction of people in the middle quintile. Nonetheless, there many people who are genuinely concerned by the the observation that median household income seems to have stagnated. But this statistic is misleading, because it does not account for the changing nature of households. Households have shrunk in size. Steve Conover has shown that the income per worker has gone up. It is just that the  number of workers per household has decreased offsetting this increase. Household, rather than individuals incomes say less about the economy and more about the way people have chosen to live their lives. Perhaps as individual income increase, people are free to opt to live in smaller households.

If you look at the distribution of income per earner as a function of time as shown below:

it appears that the middle class has just been happily pushed into higher income brackets.

Despite these statistics, many people genuinely feel that the economy has changed negatively for the “middle class” over the last few decades. I suspect that the source of this anxiety is associated with two important factors as opposed to the actual income distribution.

(1) It is very difficult to maintain a “middle-class” lifestyle with a job that is low skill. A retail worker like a shoe salesman or a low-skill factory worker used to be middle class. Low skill workers now have to compete with automation or low skill workers of other countries. The fraction of the US economy that is manufacturing is the same that it used to be, but manufacturing is now being performed by fewer and fewer more productive workers. Much like agriculture that dominated the economy  in the 1800s’s, fewer and fewer people are required to produce more and more. This is as it should be. Our standard of living would be far lower if we as a country were so unproductive that low skill jobs were typical and people in them were middle income. The goal is arrange for as many people as possible to be prepared for high-skill jobs.

(2) Middle class is not what it used to be. Middle class Americans live in larger homes than their parents, have air conditioning when their parents did not, eat out more often than their parents did, and go on vacation more frequently. This does not even count the gadgets such as cell phones, computers, and large flat panel televisions that were not even available to the wealthy a generation ago. Our expectations are higher than those of our parents.

The real danger is that this anxiety will lead to government policies that reduce the dynamism of the economy in the name of security and make the progress we have already achieved less possible to sustain.

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