A middle class theory of relativity: 4 benchmarks

A middle class theory of relativity: 4 benchmarks

How is the middle class doing? This question is being asked with increased urgency by policymakers and scholars, and of course by the Future of the Middle Class Initiative here at Brookings. The most recent substantive contribution to this debate comes in the shape of the new OECD report Under Pressure: The Squeezed Middle Class (April, 2019). The picture, as usual, is a pretty depressing one. As the report authors put it, “over the past 30 years, middle-income households have experienced dismal income growth or even stagnation in some countries.”

The general message of scholarship, commentary and journalism is that the middle class is shrinking, stagnating, sliding, being squeezed, hollowed out, left behind – or some combination of these. A few countervailing voices point out that incomes are still growing, at least for most people; that median incomes are in fact rising, even if more slowly; and that one reason the middle class is shrinking (on some definitions) is because more people have become rich.

The truth is that the economic position and progress of the middle class can only be judged in comparison to something or somebody else. It is in this sense an inescapably relative evaluation. The real question is: relative to what? Relative to the position or progress of other groups, such as the rich and/or the poor? Relative to the middle class of the past? Relative to how an individual or family is doing compared to their own personal economic history? Or relative to the expectations – reasonable or otherwise – of middle-class citizens? There are of course many more benchmarks that could be used, but I’ll focus on these four here.

Relativity 1: The Jones’s

The first way to judge how things are going for the middle class is by comparison to others. Most often, the other group in question is those who are in a higher economic bracket: the upper class, or upper income, or rich, depending on which label you prefer. The Under Pressure report highlights the different income trajectories in recent decades for families on different rungs on the income ladder:

Median incomes grew more slowly than top incomes

Across the countries in the study, income inequality has risen. Incomes in the middle of the distribution have risen more slowly than at the top. In many countries, the lowest rungs of the ladder have seen the slowest growth of all – but not in all. In the U.S., for example, there has been little change in inequality in the bottom 80 percent of the distribution. All the action is above that line.

So, if the question is, how are the middle class doing compared to the rich, the answer is: not too well. But that is really just another way of saying that inequality – and specifically the gap between top and middle – is increasing.

Relativity 2: The Old Middle Class

Another way to judge the condition of the middle class is not by comparison to today’s rich, but by comparison to yesterday’s middle class. The Under Pressure report shows that in most countries, incomes at the median have grown more slowly in the last decade than in the two previous decades:

Median income annual growth rates by country and decades

Note, however, that middle class incomes are still growing, except in a handful of hardest-hit countries. So even middle class families are somewhat better off than middle class families used to be.

So, if the question is how the middle class is doing by comparison to their predecessors on the middle rungs, the answers is: better off, but not much.

Relativity 3: Personal economic trajectory

So why don’t folks in the middle necessarily feel better off? Part of the answer may be that people typically don’t remain stuck on the same rung of the income ladder throughout their working life. The person at median income today is almost certain to be on a different rung, and probably a higher one, at a later date.

For many, the relevant metric for how they are faring may be the year-by-year improvement (or deterioration) in their own economic position. In other words, it is their personal economic history that counts. In the U.S., there is growing evidence for a decline in rates of upward earnings mobility for an individual across their working life. This seems to be particularly true of those in the middle class. The odds of a middle-earning worker (deciles 4-7) making it into the top 20 percent of the wage distribution within fifteen years has dropped significantly, by around 20 percent, according to research by Michael D. Carr and Emily E. Wiemers.

So if the question is, how are middle class people doing over the course of their own working life, compared to the equivalent trajectories in the past the answer (in the U.S. at least) seems to be – not too well.

Relativity 4: Expectations

But there is another kind of benchmark: how people are doing by comparison to how they think they should be doing. This is of course very difficult to get at empirically. How and why a person comes to create a certain yardstick against which to judge their situation is a subjective exercise. But it does seem that some middle-class malaise is founded on a sense that life ought to be better.

This seems particularly true, in the U.S. at least, of whites – who still make up the majority of the middle class (though this is rapidly changing). Middle-skill white Americans are not likely to be poor, and their incomes are likely to be at least a little higher than their parents. But they are not happy about their situation, as qualitative work by scholars such as Arlie Hochschild, Joan Williams, Jennifer Silva and others shows. This may be because they perceive, wrongly, that people of color and/or immigrants are “cutting in line,” to use Hochschild’s phrase. More whites now think anti-white bias is a bigger problem than anti-black bias. Most whites also believe, wrongly, that the earnings gap between blacks and whites has disappeared.

Even without an explicit racial comparison, many middle-class workers or families may compare their own situation to that of a previous generation of people with similar levels of education, living in similar towns, particularly members of their own family. John, a 40-year-old white man with a high school diploma living in a medium-size town in the Midwest in 2019, may compare his position to Joe, his high school-educated father, at the same age, in the same place, in 1979.

But here’s the thing: white men with high school diplomas did pretty well for themselves from the mid-1940s to the mid-1970s. This was for some reasons that many would say are good – full employment, strong unions, employer loyalty, national manufacturing prowess – and some that are bad, namely sexism and racism. As my colleague Dayna Bowen Matthew memorably put it: “equality always feels like a loss to the people who were previously unfairly ahead.”

Much has changed since. The semi-automatic preference among employers for men and for whites may not have vanished, but it has significantly diminished. Higher levels of education are now needed to secure a middle class lifestyle. Manufacturing jobs have declined sharply. Economic activity has become increasingly concentrated in or near big cities. John and Joe may live in the same town, but economically, they live in different worlds. If John believed he would get the same kind of life in the new world as his father did in the old one, with similar levels of education, he is likely to be a very disappointed man.

My colleague Carol Graham shows that pessimism and despair is in fact much higher among U.S. whites, especially those on lower incomes, than other racial groups:

Optimism levels among poor individuals, by racial group

Anne Case and Angus Deaton show sharp increases in “deaths of despair” – caused by suicide, drugs or alcohol – among whites, especially those in middle age and those with lower levels of education.

So, if the question is how the middle class is doing by comparison to their own expectations of how they should be doing, the answer is: not too well.

Everything is relative, including middle class quality of life

Assessments of the condition of the middle class – or of any other group for that matter – are intrinsically relative. The specific relativity being applied matters. It matters not only in terms of empirical clarity, but also in terms of policy. If the goal is to help the middle class relative to the rich, then some robust redistribution, specifically targeted towards the middle, is likely to be needed. If the goal is to improve the upwards earnings curve across the lifecycle, then retraining, paid leave, and wage insurance might be good policy options.

If the goal is to bring middle class living standards up to middle class expectations, regional economic development and place-based policies may be the way to go; although there is also a strong case to be made that the expectations of some, especially if based on outdated views of race, gender or the importance of education, ought to be lowered.

The main goal of the Future of the Middle Class Initiative is to “improve the quality of life of America’s middle class.” That requires, first, being clear who we mean by the middle class: and for us, it is the middle 60 percent of the income distribution. (A relative measure because, well, everything’s relative). But it also requires a clear sense of what improvement looks like, on which dimensions, and against which benchmarks. Watch this space.

It is striking, however, that right now, whichever relative benchmark is used, things are not going well for the middle class in most developed economies. As the OECD points out, history, including recent history, suggests that this bodes ill for societies in general – and not just in economic terms, but perhaps even for liberal democracy itself.