The new findings by the Pew Research Center of a seismic shift in Americans’ economic strata – one that has produced a substantial increase in the share of wealthier and poorer households raises an intriguing question.
If, after four decades of serving as the country’s “economic majority” the American middle class is being eclipsed by income groups above and below it, who has benefited the most from this transformation? In other words, who are the winners and losers in this game of income-redistribution musical chairs?
The report released on Wednesday highlighted the growing income divide in this country, as the U.S. moves towards becoming a country dominated by upper income earners and the very poor after the middle class—including upper income earners--struggled through years of recession, wage stagnation and mounting housing and education costs. Democratic and Republican presidential candidates alike have made the plight of the middle class a major campaign theme this year – and for good reason.
The middle class was once the backbone of the U.S. economy: a majority of Americans living in households earning between two-thirds to two times the nation’s median income. Last year, being middle class meant having an income that ranged from $41,900 to $125,600 for a three-person household, according to government data.
But the nation seemingly has reached an important tipping point in its economic makeup, according to Pew. An estimated 120.8 million adults were living in middle-income households in early 2015, compared with 121.3 million people living in lower and upper-income households combined.
In other words, for a host of economic and demographic reasons, the middle class had begun to shrink while the income groups above and below it had simultaneously begun to expand. One driver could be the two bulging generations on either end of the spectrum.
Millennials – who are most likely to be low-income earners (the Census Bureau measures individual income earners from age 15) account for 78 million people. And the Baby Boomers -- the first of whom turn 70 this year – are another 80 million who established their nest eggs long before the Great Recession in some cases. That leaves the country’s smallest group -- GenX – ages 35-52 to carry the middle class.
As the study notes, median earnings of all income brackets have improved since 1970, although the highest earners have claimed the biggest income gains. And while the percentage of adults living in both upper- and lower-income households rose as the middle class began to shrink from 1971 to 2015, the share of upper-income Americans grew at a faster clip.
“Fully 49 percent of U.S. aggregate income went to upper-income households in 2014, up from 29 percent in 1970,” the Pew report noted. “The share accruing to middle-income households was 43 percent in 2014, down substantially from 62 percent in 1970.
These findings were culled from data from the U.S. Census Bureau and the Federal Reserve Board of Governors. So as the middle class “hollowed out” in recent decades, who were the demographic winners and losers?
Pew researchers attempted to answer that question with the chart below showing the groups that improved on their income status compared to other groups that lost ground.
Across the country, the share of adults in the upper-income tier rose from 14 percent in 1971 to 21 percent in 2015, or a gain of 7 percentage points, according to the report. At the same time, the share of adults in the lower-income group increased, from 25 percent to 29 percent – a four-point increase.
The three percentage point difference constitutes the “net gain” for adults in the U.S. “By the same measure, the net gain in economic status varied across demographic groups,” according to the reports.
According to the Pew report, here are the biggest winners and losers:
Seniors -- By far the biggest winners were Americans 65 and older. Seniors were the only ones that had a smaller share of the lower-income tier in 2015 than in 1971. Indeed, the poverty rate for people 65 and older declined sharply from nearly 25 percent in 1970 to 10 percent in 2014.
Moreover, there is substantial evidence that rising Social Security benefits have been instrumental in enhancing the economic status of the elderly.
Blacks and Whites -- As for racial or ethnic groups, African Americans and whites scored the best, while Hispanics lost some ground. And while black Americans advanced in income status, they were still more likely to end up in the lower income tier than the higher income grouping than were whites or adults overall. “For Hispanics, the overall loss in income status reflects the rising share of lower-earning immigrants in the adult population, from 29 per cent in 1970 to 49 percent in 2015,” the report stated.
Married Adults – They were among the biggest winners, especially couples who both work and have no children at home. Conversely, being unmarried is associated with an economic loss. “This coincides with a period in which marriage overall is on the decline but is increasingly linked to higher educational attainment,” according to the report.
High school graduates -- While the economic status of adults with a college degree changed little from 1971 to 2015, those without a bachelor’s degree suffered a severe decline in financial status. “Among the various demographic groups examined, adults with no more than a high school diploma lost the most ground economically,” the study said.
Young Americans -- Millennials and other younger adults ages 18 to 29 were among the biggest losers, with a sharp rise in their share of the lower-income tiers.
Women -- Gains for women topped gains for men. This can be explained in part by the fact that huge numbers of women streamed into the labor force in the past 40 years and managed to narrow “gender wage gap.” The gain can also be explained by the fact that nearly 60 percent of all 4-year college graduates are women.
Demographic winners and losers