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Study: Middle-class poorer, earned less in 2000s

1:04 PM, Aug 22, 2012   |    comments
(Credit: KNBC)
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By Tim Mullaney, USA TODAY

For the first time since at least World War II, middle-class families finished the first decade of the 21st century poorer and with lower incomes than they had 10 years earlier.

And 85% of those surveyed say that in the 2000s, it was harder than before to maintain a middle-class lifestyle, according to a study out Wednesday by the Pew Research Center for Social and Demographic Trends.

Median household income dropped nearly $3,500 for a three-person household, to $69,487 a year, the Pew study said. The median household's net worth dropped 28% to $93,150. Incomes have dropped since 2000, while wealth rose modestly early in the decade before gains were wiped out by the recession that began in 2007 recession and the financial crisis sparked in 2008, said Paul Taylor, a Pew executive vice president.

"That the middle class always enjoys a rising standard of living is part of America's sense of itself, and it has always been true - until now," Taylor said in an interview, describing the 2000s as a "lost decade" for the middle class. "It's been 11 years since the peak in household incomes, and that covers the early part of the decade as well."

The middle class grew smaller, poorer and more pessimistic during the decade, Pew said after analyzing both its own polling data and a raft of government and private economic reports. The results show even a weakening of Americans' traditional faith that their children will be better off than their parents, Taylor said: 43% of respondents think their children will be richer than they are, down from 51% in 2008.

In 2011, just over half of the nation (51%) was defined as middle class, having annual incomes between $39,000 and $118,000 for a three-member household, said Pew. That's down from 61% in the early 1970s. All the financial figures in Pew's report are adjusted for inflation and calculated in 2011 dollars.

More than half of the shrinkage in the middle class came from families that moved upscale, joining the households, now about 20% of the total, that earn more than twice the national median income, Pew said. About two households in five that left the middle class moved below Pew's cutoff, which is an income at least two-thirds as high as the national median.

For the first time in at least 40 years, late in the decade the total percentage of national income earned by the middle class fell behind the share earned by the upper cohort, Pew said. In 2010, upper income households claimed 46% of household income, versus 45% for the middle class. The top tier's share has risen by half since 1980.

Who's to blame?
The biggest culprits in Pew's surveys were Congress, which was blamed "`a lot" by 62% of respondents for middle-class decline, and banks at 54%. More people placed a lot of blame on the George W. Bush administration (44%) than President Barack Obama (34%). Only 8% said the middle class should primarily blame itself for its falling prospects.

Pew said neither the President nor Republican challenger Mitt Romney has "sealed the deal" with middle-class voters, but its respondents said Obama's policies were better for the middle class than Romney's by a 42% to 32% margin.

The numbers are consistent with other polling and with data reported by the Federal Reserve and other agencies.

The Federal Reserve said in June that the financial crisis had wiped out middle-class gains in net worth since 1992, thanks mostly to a $7 trillion post-crash decline in home equity, while wealthier households quickly recovered their lost wealth as stock markets recovered. Pew says the median household net worth is only about $2,100 higher than in 1983, while the wealth of upper-income households climbed 87% to $574,788.

"What we find in our surveys is pretty much exactly that," said Jim Clifton, chairman of the Gallup Organization, which does public-opinion research for clients, including USA TODAY. "Both sides of the political aisle agree the middle class is getting hollowed out."

Clifton said unemployment, underemployment, and people who leave the labor force because of poor prospects all contribute to the middle class' distress. Combined, those three groups are nearly 20% of the U.S. work force, he said, a figure slightly higher than estimates by the U.S. Bureau of Labor Statistics.

Studies by the New America Foundation and consulting firm Sentier Research have also confirmed the recent drop and a longer-term stagnation in middle-class wages, as do federal data.

USA TODAY

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