The rise of the upper-middle class
We all know that economic inequality has increased in recent decades — but just who has won and who has lost are harder questions to answer. A new study suggests that, even before the coronavirus pandemic, much of the increase of inequality was generational. People born earlier in the post-World War II decades experienced faster income growth than people born later.
The study, published by the Brookings Institution, compared people in two 15-year stretches — 1967-1981 and 2002-2016 — when they were generally in their prime working years. The oldest members of the first group are mostly baby boomers. They achieved a 27% gain in their median incomes during the 15-year span, adjusted for inflation. By contrast, the oldest members of the second group were mostly millennials. Their inflationadjusted gain was only 8%.
Just what has caused this skewing of incomes is a controversial subject, but the report’s findings generally agree with many other studies. College graduates do relatively well, and labor markets have become more turbulent. In the second 15-year period, 12% of people suffered at least one 25% drop of income. In the earlier period, the comparable figure was 4%.
To be sure, there’s some good news. The share of Black families that are upper-middle-class has increased from 1% in 1967 to 14% in 2016. That’s a major gain, although it still lags the White rate of 39%.
The report was written by Stephen Rose, a research professor at George Washington University and a nonresident fellow at the Urban Institute. What distinguishes Mr. Rose’s report from many others is that he uses longitudinal data, which follow the same subjects — actual people, though their identities are disguised — over a long time period.
The “longitudinal data,” Mr. Rose says, “provide a picture of what is really happening to people because they have data on each specific person for many years.” By contrast, many other surveys simply take periodic snapshots of the same data point. For example: Every month the government surveys a sample of people to see who has a job and who doesn’t.
Mr. Rose sought to show how incomes had changed over the postwar period. To do this, he created five different income categories. The lowest was the “poor and near poor” — anyone with income below $32,500; the highest was “rich” — anyone with an income exceeding $380,500. (All the figures are corrected for inflation.) He then sorted people in the Panel Study on Income Dynamics (PSID), a wellknown database, by these income groups. Started in 1968, the PSID followed the same people until they died or withdrew from the survey. Recently, many children of the original PSID have taken their parents’ places.
According to his findings, there’s been plenty of action on the income front. The biggest change has been the rise of the upper middle class. By Mr. Rose’s accounting, it now represents about a third of the population, up from only 6% in 1967. The shrinkage of the traditional middle class will be mourned by some, but the reality is that most of those who have left the middle class have moved up, not down.
One important point: The poor and near-poor do better than the table indicates. Their share of the nation’s income has been relatively stable over time. But this overlooks the impact of many government programs that serve the poor — food stamps, Medicaid, the Affordable Care Act and others — and aren’t included in the survey. If they were, the incomes of the poor and nearpoor would be higher.
The story is similar for the role played by employer-paid health insurance. To workers, these payments for medical care are a form of income, but they’re not counted as income in workers’ paychecks. This means that the true incomes of these workers are understated.
The young inherit a system where incomes are high but not growing very rapidly or not growing at all. They had expected — and were taught to expect — that rapid growth was their birthright, as it seemed to be for their parents and grandparents. Even before the coronavirus, the economy was slowing.
Generations are set against each other. The upper middle class wants its entitlements. The poor and nearpoor want theirs. Falling behind is the lower middle class, once called the working class. Success has spawned discontent.