Friday’s post at The Market Now looked at the striking divergence in outlook between households with incomes above $50,000 and those below that threshold. I zeroed in on the $35,000-to-$50,000 group and concluded that this big portion of the middle class now feels poor.
The post elicited lots of comments, including the trenchant “That’s because they are poor, unless we’re talking about a one-person household.” This is worth unpacking. To start with, some of these are indeed one-person households. The group also includes households in different regions where costs are very different. I would agree that in New York (where TMNis based), $35,000 a year is poor. That’s not the case in some other places.
To decide whether $35,000 should count as “middle class,” it helps to know where it falls compared to the middle. So here’s one important data point: In 2011, the Census Bureau’s income threshold for the bottom of the middle fifth of households was $38,250. That places a household earning $35,000 a year in the next-to-last quintile, a little below the 40th percentile.
If “middle” means anything, this is indeed middle class. Yes, it’s below the median income, but surely the middle class has to include more than the few people making precisely $52,100 a year, right? If you want to be extra-precise, you can say it’s the less well-off half of the middle class. No matter how you slice it, based on the income numbers alone this is a group that in previous decades would not have been considered poor.
Does that settle the question? It doesn’t. “Middle class” is a social idea, not just a mathematical one. So instead of arguing whether $35,000 a year is enough to be part of the middle class, consider the latest consumer confidence index from the Conference Board*. It stands at 64.6 for those earning $35,000 to $50,000 a year, and 110.7 for those above the fifty-thousand-dollar mark. That is a gap of 46 points.
Compare this with the numbers back in 1996, not for households making $35,000-plus a year, but for those in the $25,000-to-$35,000 bracket. The median household income then was $35,492. The threshold for the middle fifth was $27,760. Relative to their neighbors, folks earning that then were in much the same spot as the $35,000-to-$50,000 group now.
Except guess what? Measured by the same confidence index, those folks didn’t feel poor. In 1996, the confidence index stood at 122.9 for the $25,000-to-$35,000 group, and 129.3 for those making $50,000-plus. That’s a confidence gap of less than seven points. Or look at an economic peak like 1999; an inflation-adjusted $25,000 then would be $35,053 now. The stock market was racing and confidence among investors was flirting with all-time highs. Still the confidence gap between the $25,000-$35,000 and $50,000+ brackets was just nine points.
In other words, in the 1990s, folks on the lower end of the middle bracket had a similar view of the economy as those making $50,000-plus. Obviously, within that group there was plenty of variation. Twenty-five thousand dollars a year then, like $35,000 now, was not going to buy anyone a comfortable life in a high-cost place like New York or San Francisco. Nonetheless, for many people it felt like enough.
That’s not the case anymore. Judging by the confidence numbers at least, a large segment of what used to be the middle class feels poor and disaffected in a way that folks at a comparable income level did not 15 or 20 years ago. The trillion-dollar question (which plenty of other journalists, like George Packer, are asking now, too) is: What’s changed? Is it an increased perception of inequality, driven by the rapid growth of incomes at the top? Or is it a dramatic decline in living standards that’s not fully captured by the economic data we have?
That brings us back to the comment I started out with. Yes, one quick and dirty — and in some ways accurate! — answer to “Why do households with incomes of $35,000 to $50,000 feel poor?” is indeed, “Duh, because they are poor.” That’s fine if your aim is to express solidarity with all the folks trying to raise a family on less than $50,000 a year. But leaving it at that doesn’t do those families any favors. If you want to figure out how to fix the middle class, you need to figure out what happened to tear it apart.
P.S. To the left, a small version of the confidence gap chart from the Friday post. Click here or on the chart to see more about the gap in outlook that has cleaved the middle class in two.