Behind the Middle-Class Funk
President Obama is working hard to refocus attention on the middle class, and rightly so. While a decent society will provide opportunity and, when necessary, direct assistance to the poor, the long-term health of our economy and our democracy depends on a prosperous, self-confident middle class.</br></br>That's not what we've had in recent years. Median incomes fell sharply during the Great Recession and have barely begun to recover. Despite recent signs of recovery, housing -- the principal source of wealth for middle-class households -- remains priced about 25% below its pre-recession peak. Many workers who lost middle-income jobs have found only part-time or low-wage replacements and doubt that they will ever regain their pre-recession standard of living. Not surprisingly, many middle-class parents now doubt that their children will enjoy comparable lives</br></br>Concern about the middle class is not new. Compared with the quarter-century after World War II, recent decades -- though not disastrous -- were disappointing, even before the Great Recession. Many economists define the middle class as those adults whose annual household income is between two-thirds and twice the national median -- today, that means roughly $40,000 to $120,000. By this standard, according to the Pew Research Center, the middle class is significantly smaller than it once was. In 1971, it accounted for fully 61% of adults, compared with 14% for the upper class and 25% for the lower class.</br></br>Four decades later, the middle class share had declined by 10 percentage points to just 51%, while the upper class share increased by six points and the lower class by four. The U.S. income distribution is still a bell curve, but the left and right tails are fatter and the hump in the middle is lower.</br></br>This means that the middle class is less economically and socially dominant than it once was. Relatively speaking, more Americans are enjoying affluent lives at the same time that more are just barely making it (if at all). But that doesn't mean the middle class got poorer. During those 40 years, Pew calculates, the median income of middle-class households (adjusted for inflation) grew by 34%. The median grew for the others as well -- by 43% for upper-income households and 29% for those with incomes below the middle class. This isn't surprising, because the median income for all U.S. households rose by 32% during that period, from $44,845 in 1970 to $59,127 in 2010. Indeed, 86% of middle-class Americans, and 84% of all Americans, enjoy higher incomes than their parents did.