America’s Shrinking Middle Class Causes Economic Concern

Stop me if you’ve heard this one before. The American middle class is under siege and shrinking. What about this one? That’s not entirely bad news.

America’s large middle class has long been a pillar of our society and economy. This hard-working, optimistic, prosperous group traditionally acted as a center weight in politics, preventing the sort of political unrest and extremism that plagues countries where a privileged few control most of the wealth and the rest of the people live in near desperation with little hope of advancement. The wages earned by the middle class provide large and reliable domestic markets for American industry. So, yes, any sign of distress in the middle class is reason for concern.

The middle class has been slowly shrinking for about 40 years. Today only 50% of Americans are currently in that group, according to a recent study of 2014 data by the Pew Research Center. That’s the lowest percentage since at least the 1970’s. Concerning for sure. But the real story is what’s happening inside that smaller middle class – and why. Those trends illuminate the real problems and opportunities we face as a nation.

household incomePew defines “middle class” a three-member household earning between $41,869 and $125,608. That’s a big spread, for sure. And the shrinkage has been happening in the center of that range while the number of households teetering on the lower edge and verging on the top end has grown, especially in recent years.

There are several somewhat obvious reasons for these trends:

Fewer factory jobs – Automation and globalization have eliminated a huge number of good paying manufacturing jobs. In 1971, 28% of middle-class adults were employed in manufacturing. Today it’s just 11%. Some experts think that number will shrink further in another wave of automation driven by the need to lower costs in the face of growing global competition.

Pressure on retirees. We’ve actually made progress combating poverty among seniors. Just 10% of those 65-plus live below that line, down from 25% in the 1970’s. But this age group is still the most likely to be lower income. Higher medical costs and longer lifespans are likely to force more retirees out of the middle class in the coming years.

Related: The Morbid State Of Retirement In America

The (even greater) power of education. The disparity in earning power between college graduates and high school grads has grown substantially, powered by the premium placed on tech-related degrees. The earnings gap between the median college and high school graduate doubled between 1979 and 2012, according to Pew. Forty-one percent of Americans with at least an undergrad college degree are in the top tier of middle-class earners. Just 11% of high school grads earn at that level. Many of those high earners work in computers and other tech fields. Software developers make a median $93,350 in 2012, compared to an overall national median income of $34,750.

Related: Why A College Degree Is Still Worth It

Boom in professional services. About 33% of the current middle class works in professional or business services jobs, up from 18% in 1971. One-third of the new jobs created in Atlanta so far this year are in this category. These gigs – architect, sales rep, lawyer, bookkeeper, et cetera – pay good wages but often require a college education.

It is true that the upper class is amassing an unprecedented amount of wealth. Upper-income household now hold between three and seven times as much wealth as the middle class. But, contrary to a divisive perception, that’s not totally the result of hedge fund managers and their ilk getting richer on the backs of the middle class. Today, one-fifth of American households are considered upper income, meaning they earn in excess of $125,608. That’s the highest percentage in the history of Pew’s research.

This is largely the result of that demand for highly educated, tech-savvy workers fueled by the innovation and risk-taking that have always been hallmarks of the American economy.

Related: 4 Ways To Build Wealth – Think Pounds, Not Pennies

There is a great deal of understandable anger in America, much of the result of a sense of economic unfairness. Those feelings fueled the improbably Presidential bids of both Donald Trump and Bernie Sanders. But, as this research indicates, our real problem isn’t the 1% versus the 99%. The real challenge is the same as ever – figuring out how to match our workforce with the good-paying jobs of today and tomorrow. We aren’t going to need any more coal miners or unskilled assembly line workers. But we’re going to need literally millions more computer programmers in the coming years, along with 200,000 software developers. Skilled and educated people are also in demand for complex manufacturing work.

Preparing our workforce to prosper in the future is going to take long-term commitment and cooperation between government and business. It must be a bi-partisan effort. I hope that once this contentious election is behind us, America can come together and work seriously on this issue, which affects all of us. If we can, our greatest days are still ahead of us.


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