Shrinking middle class transforming communities nationwide, new study says
Posted May 16, 2016
Updated May 17, 2016
The majority of Americans no longer fall into the middle class. But new research shows that while the displacement is about equal between the upper and lower classes, the change is having significant impact on cities nationwide.
Pew Research Center released Wednesday is an analysis of income data from 2000 and 2014 of 229 metropolitan areas that together are home to three-fourths of American adults. "America's Shrinking Middle Class: A Close Look at Changes Within Metropolitan Areas" found some strong regional patterns in who's moving up and who's losing ground, said Rakesh Kochhar, the center's associate director of research.
That shrinking middle class, said Kochhar, "reflects a phenomenon that's transforming just about all communities in the country." And with it comes greater income inequality, which he noted "is going on everywhere."
In that time period, 90 percent of metropolitan areas experienced a decrease in the portion of people who live in middle-income households — those between 67 percent and 200 percent of the national median household income. For a family of three, that would be $42,000-$125,000.
According to the report, "With relatively fewer Americans in the middle-income tier, the economic tiers above and below have grown in significance over time. The share of adults in upper-income households increased in 172 of the 229 metropolitan areas, even as the share of adults in lower-income households rose in 160 metropolitan areas from 2000 to 2014."
It noted that "the shifting economic fortunes of localities were not an either/or proposition: Some 108 metropolitan areas experienced growth in both the lower- and upper-income tiers."
Who's climbing or slipping
About half of the metropolitan areas studied made economic progress, with relatively more people moving into a higher-income tier than slid into the lower tier. Kochhar said the communities shared in the shrinking of their middle-class populations but were divided in where those people now reside.
The Midwest is home 8 of the 10 largest middle-income communities, with Ogden, Utah, and Honolulu being the two outliers. Wausau, Wisconsin, had the most adults living in middle-class households, at 67 percent.
"Generally speaking, middle-class households are more prevalent in metropolitan areas where there is less of a gap between the incomes of households near the top and the bottom ends of the income distribution," the report said. "Moreover, from 2000 to 2014, the middle-class share decreased more in areas with a greater increase in income inequality."
The upper income ranks — households with more than twice the median income — were concentrated in the northeast corridor and on the California coast. Midland, Texas, led that group with 37 percent moving into the upper-income range.
But income gains and losses are not static. Midland's economy is heavily influenced by the oil business: as prices rose, more people gained larger incomes; since oil prices have declined, incomes have followed suit in the wake of layoffs, according to news reports. Personal gains and losses can fluctuate in communities based on many factors.
The large populations of lower-income households (below 67 percent of the U.S. median income) were in the Southwest along the Mexican border or in central California, Pew found. Two Texas metropolitan areas, Laredo and Brownsville-Harlingen, tied for the highest share living in lower-income households, each coming in at 47 percent.
The top 10 metro areas that were middle income were also "more rooted in manufacturing than the nation overall," the report said. Some manufacturing communities, like those in North Carolina or Detroit, Michigan, have been hit hard economically. In some, manufacturing remained strong and the communities were unscathed.
"It depends on what kind of manufacturing," said Kochhar. "But the role of the manufacturing sector in sustaining the middle class in these Midwest localities is not clear-cut," he said. "While manufacturing jobs tend to pay more than average, the sector has been letting go of workers in recent decades."
Nationally, the share of American adults living in middle-income households fell from 55 percent in 2000 to 51 percent in 2014.
According to the analysis, "the decrease in the middle-class share was often substantial, measuring 6 percentage points or more in 53 metropolitan areas, compared with a 4-point drop nationally."
Each metropolitan area studied had at least one urban area with a population of at least 50,000 people, "plus neighboring areas that are socially and economically integrated with the core."
The national estimates included the entire U.S. adult population, not just those in the 229 areas.
"The widespread erosion of the middle class took place against the backdrop of a decrease in household incomes in most U.S. metropolitan areas," the report noted. "Nationwide, the median income of U.S. households in 2014 stood at 8 percent less than in 1999, a reminder that the economy has yet to fully recover from the effects of the Great Recession of 2007-09. The decline was pervasive, with median incomes falling in 190 of 229 metropolitan areas examined."
Pew also noted that metro areas sometimes cross state boundaries, for example, New York-Newark-Jersey City.
'The real issue'
Income disparity and the gulf between rich and poor created by a shrinking middle class has been heavily discussed as part of the presidential campaign and elsewhere. According to a 2015 International Monetary Fund report, income inequality “negatively affects growth and its sustainability.”
The IMF report found that when the resources of the richest 20 percent increase by 1 percentage point, gross domestic product growth drops slightly for five years, “suggesting that the benefits do not trickle down.” A similar increase in the income of the poor in the bottom quintile generates modest economic growth. “This positive relationship between disposable income share and higher growth continues to hold” for the middle class, it said.
Experts are not uniformly concerned about changes to the middle class.
"I think the impression that the middle class is shrinking depends on how you do the measurement," said Ron Haskins, a senior fellow at Brookings Institution and co-director of its Center on Children and Families, who noted many people are no longer middle class because their incomes grew. "I think there's a big picture that the American economy is deeply flawed and more Americans are having problems than really are."
He said focus on the size of the middle class detracts from more pressing concerns. "That's not the real problem. To me, the big story is wages at the bottom — and that can mean the bottom 50 percent."
Wages for men since 1979 have not grown in real terms, Haskins said. That's not true for women.
Of the growing gap between the top and bottom income groups, he notes differing opinions. As the richest amass ever-greater wealth, "some have suggested a demoralizing effect. Others argue it's had little impact on the middle and the bottom. I think most Americans — a huge percentage including ones at the top — would be happier if growth of the economy was truly shared, if we saw increases at the bottom like 1990, but that's not what's happened."
He said he would favor thinking about ways to further bolster those at the bottom. "We're doing a lot," but more is needed, Haskins said.
Where do you fit?
Pew has created an interactive calculator so individuals can plug in their locations and situations and see how they compare to others in their communities. And you can look at the entire country and check out communities using Pew's interactive metro area map.
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