The elusive middle class.

Photographer: Sherman/Getty Images

The Middle Class Is Worse Off Than You Think

Mark Whitehouse writes editorials on global economics and finance for Bloomberg View. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was previously the founding managing editor of Vedomosti, a Russian-language business daily.
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If you worry about the declining fortunes of the U.S. middle class, take heed: It might be worse than you realized.

Tracking the middle class can be difficult, because the group is hard to define. Typically, researchers look at households with incomes or net worth in the middle of the entire population. This approach, though, might provide a falsely rosy picture. It doesn’t, for example, capture the fates of families that start out in the middle and -- due to a job loss or other setback -- end up in the bottom.

Two economists at the Federal Reserve Bank of St. Louis -- William Emmons and Bryan Noeth -- sought to address this shortcoming by focusing on households' demographic characteristics, rather than income or wealth. Specifically, they looked at families whose breadwinner was at least 40 years old and had achieved a level of education that would typically allow a middle-class standard of living.  Whites and Asians needed exactly a high-school diploma to qualify. For blacks and Hispanics, it took a two-year or four-year college degree -- a stark recognition of persistent racial inequality.

The results are not pretty. As of 2013, this group's median annual income stood at about $45,000, down 16 percent in inflation-adjusted terms from 1989, with a big part of the drop occurring since 2001. Over the same period, a more commonly used measure of the middle class's fortunes -- the median income for all families -- declined just 1 percent. Here's how that looks:

The picture for wealth is no better. The group's median net worth (assets minus debt) was about $127,000 in 2013, down an inflation-adjusted 27 percent from 1989 and 38 percent from 2007, just before the financial crisis hit. By comparison, the median net worth for all families declined just 4 percent over the whole period (it's also lower overall because it includes younger families that haven’t yet saved much). Here's how that looks:

To be sure, the researchers' definition of the middle class isn't perfect. Their choice of demographic characteristics, for example, was limited by their data source, the Fed's triennial Survey of Consumer Finances. Nonetheless, their findings offer troubling evidence that the U.S. middle class is faring worse than broad income and wealth data alone would indicate.

  1. They set the age threshold to capture breadwinners who had likely reached their earning potential and whose educational attainment was unlikely to change. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Whitehouse at mwhitehouse1@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net