Debunking the "Decline of the Middle Class" Myth

by: Mark J. Perry

On this CD post about this Skeptical Optimist post, Bobble writes (with grammar/punctuation corrected):

You might want to check Steve's latest revisions. They are inflation adjusted and the income trends look pretty flat. Real income increased from 1994-2007 at approximately 1%. He still compares the period of 1994-2007 with the period 2001- 2007. If he showed the increase from 2001 to 2007 I *think* it would be around zero. He still doesn't show the increase for the top quintile. So how can we tell how the middle class did compared to the top earners? I think this guy and his charts are busted. That you are ignoring this reflects negatively on you and your website. I hope you are more diligent in your teachings.

1. If you look at the actual Census data, you'll see that: a) the datasets for household income are available from 1994 to 2007, and b) household income is NOT reported by quintile or decile, but by income categories in increments of $2,500 UP TO $100,000: e.g. under $2,500, $2,500 to $4,999..... $97,500 to $99,999, and THEN $100,000 AND OVER.

As Steve explains, "The bottom 4 quintiles of household income are easy to analyze, but the 5th (top) quintile is not. Each quintile has the same number of households in it, but only 4 out of 5 quintiles have easy-to-calculate, weighted-average income per household, and income per earner. That's why the charts don't show the highest one."

Certainly, if Census had reported income by quintile, and Steve Conover left that quintile out of his analysis, that omission would be subject to criticism. But if you look at the data, and read Steve's explanation, you'll see that it was not possible to report the top quintile because of the way Census organized the income data.

And adding the top quintile would not change the fact that "income per earner" for all four of the bottom quintiles increased between 1994-2007. In other words, the "middle class" did not disappear and income for that group and even income for the "lower class" did NOT stagnate. And if income inequality per earner did increase during that period (which we can't tell without the top quintile), it was NOT because the income of the middle and lower income groups stagnated or declined.

2. Adjusting for inflation doesn't change the original analysis that showed "income per earner" for all four bottom quintiles increasing between 1994 and 2007, at about the same rate, but with a slightly higher rate for the bottom quintile than the other three (see top graph above). Subtracting 2.5% average annual inflation from each quintile doesn't change the fact that real income per earner for each of the four groups increased between 1994 and 2007 at about the same rate (1%), except that the LOWEST QUINTILE increased at a significantly HIGHER rate of 1.5% (see bottom chart above).

Bottom Line: The value of Steve Conover's analysis is that he has converted the Census Bureau's raw data on "Household Income" from 1994-2007 to INCOME PER EARNER, BY QUINTILE, to investigate the often-reported stories about "the decline of the middle class" (305,000 Google hits), "the war on the middle class" (515,000 Google hits), etc. Whether we look at nominal income or real income, the result is the same: all income groups have experienced gains in "income per earner" from 1994-2007, and the lowest income quintile did even better than the next highest 3 quintiles. Therefore, the rich got richer, the middle class got richer, and the poor got richer.

Any analysis of household income over time will always be distorted by the facts that: a) the number of "persons per household," and b) the number of "earners per household," vary significantly by quintile, and change over time.

My own analysis showed this in a previous post, when I adjusted real median household income over time by the average number of persons per household, which has declined significantly from about 3.3 persons per household in 1967 to about 2.55 in 2007. After adjusting for household size, the real median income per person reached an all-time high in 2007, see charts below: