US wealth gap widens as middle-class shrinks

New economic data warns that America's dwindling middle class could be an obstacle to future US economic growth and make social mobility more difficult. According to data from the Pew Research Centre, the percentage of US households classified as middle-class, currently measured as those earning between $42k and $125k for a family of three, fell from 55% in 2000 to 51% in 2014. The widening wealth gap, as more households move into either higher or lower income groups in major metropolitan areas, is said to threaten the country's economic fabric, as those who fall into the lower bracket will be less able to invest in everything from housing to education. The declining middle class is viewed as a reflection of rising income inequality in the US, which has been a central issue in the 2016 presidential campaign. 

America’s cities are becoming uninhabitable for middle-income families.

The very rich and very poor increasingly live in metropolitan areas, while middle-class residents are moving farther away due to the rise in the cost of schools, child care and housing. The share of adults living in middle-income households fell in 88% of U.S. metropolitan areas — that is, 203 of 229 areas — between 2000 and 2014, according to an analysis of government data released Wednesday by the Pew Research Center, a nonprofit, nonpartisan think tank in Washington, D.C. The decrease in the middle-class share was also often substantial, measuring 6 percentage points or more in 53 metropolitan areas, compared with a 4-point drop nationally.

This erosion of the middle class coincided with a fall in household incomes in most metropolitan areas. “The median income of U.S. households in 2014 stood at 8% less than in 1999, a reminder that the economy has yet to fully recover from the effects of the Great Recession,” the report noted. Median incomes fell in 190 of the 229 metropolitan areas. (The report encompassed 229 of 381 metropolitan areas as defined by the federal government, the maximum number of areas that could be identified in the Census Bureau data, and accounted for 76% of the U.S. population in 2014.)

The economic tiers above and below the middle income have grown in significance over time, Pew found. The share of adults in upper-income households increased in 172 of the 229 metropolitan areas, and the share of adults in lower-income households rose in 160 metropolitan areas from 2000 to 2014. (For a three-person household, the middle-income range was about $42,000 to $125,000 annually in 2014.) In fact, a family of four needs to earn six figures (or close to six figures) to live in the major cities of the U.S., according to a recent study of 618 metropolitan areas by the nonprofit, nonpartisan think tank the Economic Policy Institute.

Don’t miss:Most Americans are one paycheck away from the street

Plus, incomes are stagnating. Overall, the percentage (rather than the actual number) of middle-class Americans has been shrinking. The share of Americans who are part of middle-income households has plunged to 51% in 2013 from 61% in 1970, separate Pew data released last year found. And from 1990 to 2013, the share of adult Caucasians and Asian-Americans living in middle-income households decreased the most of any ethnic groups, from 58% to 53% for Caucasians and from 56% to 50% for Asians. The decline was less pronounced among Hispanics (from 48% to 47%) or African-Americans (from 47% to 45%).

America’s middle class has lost nearly 30% of its wealth over the last four decades. The shrinking of the middle class has reached the point where it may no longer be the economic majority in the U.S. More households make up the middle class than 40 years ago, yet they comprise a smaller share of overall wealth. In early 2015, there were 120.8 million adults in middle-income households versus 70.3 million in lower-income and 51 million in upper-income households, according to Pew. “The hollowing of the American middle class has proceeded steadily for more than four decades since 1971,” researchers Richard Fry and Rakesh Kochhar wrote.