America’s Shrinking Middle-Income Households

Many scholars and journalists write on America’s shrinking “middle-class.” Mark J. Perry’s research, drawing from Census data, reveals surprising explanations.

Perry quotes from a recent New York Times story “…since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom.” Though Perry agrees that middle-income households have declined:

Over the 47-year period between 1967 and 2013, the share of “middle-income” American households has fallen by ten percentage points, from 53% in 1967 to about 43% in 2013. 

Census data clearly shows they haven’t fallen to the bottom:

 But where did the disappearing middle class go? Did they fall into the lower-income category? Not at all, because the share of “lower-income” US households earning less than $35,000 also fell over the last 47 years by about five percentage points, from 39.3% of all US households in 1967 to 34.4% of households in 2013. 

Census data also sheds light on where the missing middle and lower income households escaped to:

The biggest shift in household income between 1967 and 2013 took place for the share of American households earning $100,000 or more, which almost tripled from only a 7.7% share of US households in 1967 (1 in 13 households) to a 22.5% share of US households in 2013 (almost one in four). That nearly 15 percentage point increase in the share of US households earning $100,000 or more between 1967 and 2013 (from 7.7% to 22.5%) came about from a 10 percentage point decline in middle-income households (from 53% to 43%) and a 5 percentage point decline in lower-income households (from 39.3% to 34.4%). So as I concluded before, a large part of the middle class did disappear, but they didn’t fall down to a lower-income class, they rose into the upper-income class!

Though fifty year income trends are positive, Perry notes that since 2000 lower-income households stopped declining and began rising from 31% to 35% of total households. Why the shift?

Perry outlines a number of explanations, from a decline of average working hours (dropping on average from 48 hours in 2000 to 43 in 2013), to a decline of income earners per household (a 5% drop since 2000 in households with two or more earning income).

Perry notes other changes, including the size of middle-income households:

The average household size has decreased from 3.28 members in 1967 to 2.62 members in 2000 to a record low 2.54 members in 2013.

So since 2000 the U.S. has more and smaller households with on average fewer income earners. It should be no surprise that average household income has fallen and the size of households has fallen.

These household income changes are important but not signs of social collapse:

Bottom Line: In other words, important demographic changes that have taken place over the last decade or longer might account for stagnating household income because the average US household today, compared to a household even a decade ago, is: a) smaller, b) has fewer earners on average and is more likely to have no earners, c) is more likely to be a retiree household on a fixed income, d) contributes fewer average weekly work hours, and e) receives a greater share of their compensation in the form of non-taxable fringe benefits.

You can seize more Mark Perry posts at AEI’s Carpe Diem site.