Poor and Middle Class Incomes Down

Found this today on CNN and thought it was interesting:

Poor and middle-class families are entering the recession in a precarious situation due in part to declining or stagnant income growth, a study released Wednesday has found.

Incomes, on average, have declined by 2.5% among the bottom fifth of families since the late 1990s, while inching up by just 1.3% for those in the middle fifth of households, according to an analysis by the Center on Budget and Policy Priorities and the Economic Policy Institute, two liberal think tanks.

The wealthiest slice of Americans, however, saw their incomes rise by 9%.

The average income of the bottom fifth of families was $18,116; the middle fifth, $50,434; and the wealthiest fifth, $132,131.

Comments

[Curt at PennyJobs.com]

Bad deal. And the middle class is about to get wiped out by inflation.

Say Goodbye to the Middle Class

[Finally Frugal]

No wonder I feel like I'm never getting ahead. According to an inflation calculator on the BLS.gov website (http://data.bls.gov/cgi-bin/cpicalc.pl), I'm making a mere $500 more than I was in 1998 when adjusted for inflation. I work in education, so getting a 3% rate (which doesn't even cover the increased cost of living) means we're having a good budget year.

Thanks for the info! I've suspected this for years, but seeing the numbers is helpful.

[Rick Blaine]

FMF: Is this article equating "wealth" with "income"? It certainly seems like it -- or else it is not explaining the distinction. That is a typical--and disingenuous--conflation that you should be pointing out every time you quote an article that does it, especially in a political year.

I have never seen (or looked for) a graph that plots "net wealth" against "income" -- but the underlying premise of your site is that the two are not perfectly correlated--not remotely. (Maybe this is linked to the savings-drought in the United States: Everyone seems to believe that their income is their only wealth.)

In other words, to all the politicians and reporters out there: WEALTH and INCOME are not the same thing and stop using them interchangeably.

[FMF]

Rick --

I think they are talking about income and simply using wealth as a synonym so the word "income" isn't every other word. It makes for better writing, though it could be confusing if you try to read too much into it. I don't think they're trying to be dishonest.

[Mr. Stupid]

I think this is politically-motivated alarmist BS. People have been predicting the death of the middle class since the 60's.

I have vivid memories of my parents lamenting the destruction of the middle class when I was 6 years old. Folks, that was 30 years ago.

Seems that the rhetoric gets amped up every election year.

[Richard]

Yes, it's called Stagflation

[Anonymous]

Mr. Stupid- and did both of those parents work, or could the family afford a middle class life with one parent staying home?

It's not BS that real wages have declined and that the minimum wage was worth more in the 1970s than it is today.

[Matt]

Even if the wealth/income distinction can be chalked up to the reporter's ignorance (and I think you're right about that, FMF), there are a couple other statistical problems.

First, it's talking about families. It's hard to say where one family begins and another ends, so usually that really refers to households. Household data always understates income growth, because as incomes rise, fewer people choose to live under the same roof. Consider this example. Someone graduates from college and moves back in with his parents while he looks for a job. His parents together make $150,000, so the average household in this tiny group makes $150,000. Then the recent college grad finds a job making $40,000 and moves out. Now the average income for these two households goes down to $95,000. Does that mean they're worse off?

Next, the studies almost certainly use CPI to measure inflation. It is widely believed among economists that CPI systematically overstates inflation, which would also understate income growth.

Then there's the problem of simply slicing the population into income quintiles. That can reflect shifts in the age of the population as much as anything, since younger people tend to make less money. If the studies tracked actual people through their lives instead, it would almost certainly find significant real income growth.

In a recent column by Ben Stein over on Yahoo Finance, he had a great quote from his father: figures don't lie, but liars figure. It should come as no surprise that "proving" that everyone except the highest-income people are losing out (especially during Republican administrations) is a high priority for liberal think tanks.

[Rick Blaine]

FMF:

wealth: "the stock of useful goods having economic value in existence at any one time"

income: "a gain or recurrent benefit usually measured in money that derives from capital or labor; also : the amount of such gain received in a period of time"

If you agree that wealth and income are not the same thing -- and I assume you do -- then using them as synonyms cannot make the article's writing better; it can only make it worse. The hallmark of good non-fiction, non-persuasive writing is clarity. Once you admit that using both terms makes the writing confusing, it's officially bad writing.

I'll just repeat what I noted before: In an election cycle, the term "wealthiest Americans" is used over and over to refer to those in the highest income bracket. The decision to characterize it as such -- and conflate the two terms -- is deliberate because the United States doesn't have a yearly "net-wealth tax." Therefore, to increase taxes on income, the entire populous must believe (or be made to believe) that those people are all extremely wealthy.

There are very real consequences from this decision. The most obvious is that the truly wealthiest people in the United States -- the elderly who have large savings and dividend payouts but low income -- are spared bite of higher taxes; and the poorest Americans -- the young who have just started earning and do not have large savings and/or investment income -- take the brunt of it.

[AdamCO]

It's a logical fallacy to say that event X is impossible sole because event X was previously predicted and failed to materialize.

Just look at the data. The death of the middle class in the 60s was avoided by moving to a two-income earner society. What's next, putting the kids to work? Then, in 2040, I'll say to my 12-year old son, "we used to talk about the death of the middle class in 2008. it's dumb, it didn't happen then and it isn't happening now. "okay, now off to work, jonnie."

[escapee]

my income has quadrupled since 1996, when I took my first job out of grad school making $24,500/yr. I was barely enough to feed myself and pay rent and student loans. Since then my "day job" has tripled in income and alternative income had made up the other 25% increase. I'm between the middle and weathiest fifth. I'm not feeling too badly off, but I know we're not rich either.

my income hasn't gone down even when you add inflation into it. I'm also not in the wealthiest bracket.

We don't need to put our kids to work, what we need to do is learn to live sensibly. You don't need a bazillion square foot house for your family. You don't need to buy a new car every two years. We NEED to change the way we live and not thinks that success always equals having a higher standard of living than our parents.

[AdamCO]

Excapee --

What I am taking away from your post is that it is possible for someone with a graduate degree to make a decent middle-class income. Well, uh, yeah. I don't think this will be changing.

I grew up in a blue-collar family that lived reasonably off of an auto-workers salary and my mother working part-time. Today, the life I had growing up would be pretty much impossible.

We once had a middle class of working families that built their lives off of dedication and hard work. We just don't have that anymore. Today "middle class" life seems to exist only for the well-educated, if then.

[mysticaltyger]

It's undeniable that things have gotten tougher for the middle class and poor. But at the same time, we're also victims of our own stupidity. Oversized SUVs, mortgages that are more than we can really afford...And the really big thing that has hurt the poor and middle class is the dramatic increase in out of wedlock births. Almost 40% of births are now out of wedlock. When the out of welock birth rate drops there will be many fewer economically insecure people.

[Jim]

Here's the census data on :
http://www.census.gov/hhes/www/income/histinc/h01ar.html

It shows family income for each quartile both in real dollars and in CPI based inflation adjusted.

In real dollars the rate of income growth is higher for the upper bracket than the lower bracket. And I think its just common sense that inflation is hitting the lower brackets harder than the upper brackets.

Jim

[Skott]

The rich get richer because they keep doing the things that made them rich in the first place. (The vast majority did not inherit their wealth)

[Ryan S.]

To those that said the death of the middle class was halted by the two income households, consider a couple of things.

1. When women entered the workforce, the total number of workers went up substantially, increasing the supply, decreasing the demand, thus lower salaries. So the two income family didn't "save" the middle class, it just reduced salaries.

2. Consider the average size house in the 1960's. Around 1200 SF. People were lucky to have 1 car, rather than a car and an SUV with power everthing, more comfortable ride, etc.

3. Computers, cell phones, big screen TV's, microwaves, tile floors, granite countertops, etc., etc, etc, are all common items now. These were huge luxuries or didn't even exist back in the 60's.

[Michael B]

The problem here is the definition of poor. I've traveled all over the world and let me tell you - our poor live like rich people elsewhere. Today our poor have AC, color TV, bulging waistlines and a car.... that's a dream for most folks around the world! Poverty is a behavior issue. Why do most immigrants and their children do well in this country? Because they know what poverty really is so they work hard and spend little. We Americans need to wake up before the world passes us by.

[Matt]

Walter E. Williams has a great column on this topic:
http://www.townhall.com/Columnists/WalterEWilliams/2007/10/31/are_the_poor_getting_poorer

[Tina]

I have to agree with Michael B. "Poor" is a relative standard. I am a social worker and work with a lot of "poor" families that receive cash aid, food stamps, government-paid health insurance and live in government-subsidized housing. Among this group, most of the families have cell phones (usually much nicer than mine), cable television (something I choose to live without) and rely on more expensive prepared foods to feed their families. I am disturbed by how entitled many of these people feel. Somehow it has become their "right" to have luxury items despite not working for them. I grew up in a household that had many financial ups and downs (my parents are self-employed). When money was tight we ate a lot of beans and pasta. We went without new clothes. One year the kids were told there would be no Christmas presents. My family's experiences were a real-life lesson in fiscal responsibility.

[Colin]

Entitlement will be the ultimate downfall of our social/economical system. Bravo Tina.

We should topple this unfair goverment

Fuck the rich dont buy there shit no more

[pamela stallcup]

No matter how you slice it ,it cost to much to live .Iam a licensed vocational nurse for 36 years,and take care of people at a level most can not.I get paid 18.oo dollars an hour today the same I made in 1991,Iam in the proverty range, iam single so all bills must be paid by me,so at 55 im looking to share a room so I can save.and they wander why tere is a shortage in nursing ,I love nursing but it has taken such a physical and mental toll ,so now I guess the thing I can say is ive got work while i can walk and when I cant