MC-Middle-class-report.pdf (application/pdf Object).
I came across a link to this study, published in April, 2008. It focuses on the middle class in America, and contains a number of interesting factoids. But the reason I'm posting about it is that it seems to me that it ignores perhaps the most important reality -- one which should have underlaid the design of the questionnaire and the selection of additional data sources.
The study defines middle class in two ways. First, it accepts respondents' own assessment of which class they belong to. Second, it sorts people into three groups as a function of family income: those whose income is below 75% of the national median, those whose income is between 75% and 150% of the median, and those whose income is over 150% of the median.
While that 75% to 150% definition might be meaningful at the local level, it is ridiculous at the national level. Local median incomes vary widely, and while those who are at 75% to 150% of the local median are probably middle class there, a family at 100% of the median for, say, Birmingham, would be in a very different situation from the person who is at that same level of income, in dollars, in New York City or its metropolitan area. Omitting local realities from the analysis doesn't work!
Of the 2,413 respondents, 53% described themselves as middle class; 19% upper middle class, 19% lower middle class, 6% lower class and 2% upper class. The study combines upper middle and upper into a single "upper class" and the lower middle and lower into a single "lower class."
The authors of the study dimly perceive the disparity in the cost of living. They say,
Fully four-in-ten Americans with family incomes below $20,000 say they are middle class, as do a third of those with incomes of $150,000 or more. Not surprisingly – given this broad range – some in the middle class (39%) report that they are financially comfortable, while 37% say they "have a little left over after meeting expenses" and 20% say they "just meet expenses."
and
There’s a strong correlation between respondents’ family income and their estimate of what it takes to lead a middle class lifestyle. The greater the income, the higher the estimate. Adults in families whose income is between $100,000 and $150,000 a year believe, on average, that it takes $80,000 to live a middle class life in their area. By contrast, adults in families whose income is less than $30,000 a year believe that a middle class lifestyle can be had for about $50,000 a year. Analyzing these estimates by the ZIP codes of the respondents yields a similar finding: that people who live in communities with a high cost of living think it takes, on average, about $15,000 more to be in the middle class than do people who live in communities with a low cost of living.
and, much later,
According to our analysis of respondents by their zip code and by local cost-of-living scales, people earning $100,000 a year are much more likely to describe themselves as upper class if they live in communities with a low cost of living than if they live in expensive communities.
Also interesting is that one of the highest priorities for the middle class is '"having enough free time to do the things you want."
Size of the middle class: defined in relation to the national median income (adjusted for household size),
Since 1970, the middle income tier in America has shrunk by about 5 percentage points. In 1970, 40% of all adults in this country lived in a middle income household, with “middle” defined as one where the income falls within 75% to 150% of the median. By 2006, just 35% of adults were in the middle income tier. This small but notable hollowing out of the middle has been accompanied by an increase in the share of adults in both the lower income category and the upper income category. The rise in share has been greater over this time period for the upper group (to 32% in 2006 from 28% in 1970) than for the lower income tier (to 33% in 2006 from 31% in 1970).
The study brings out some important statistics, often taken from the 1970 Census and the 2006 ACS, or from custom tabulations of the triennial FRB Survey of Consumer Finances. For example, they show the median net worth of families in the three income groups in 1983, 1992 and 2004; the increases for upper income families are much higher than for the middle or lower income groups. An analysis that takes into account differences in local costs of living -- which are largely differences in the cost of housing ... which is mostly land value -- would have been far more useful. In particular, they would likely have shown much larger increases in home equity than those in places with lower land value. (One might be tempted to point out that most of those large-increase areas are blue counties, and most of the small-increase places are red counties. See Mason Gaffney's article, "The Red and the Blue.")
A table showing Median Debt-to-Asset Ratios for the three income groups shows that while the median ratio for upper income people has risen from 0.21 to 0.27, for middle income it has risen from 0.25 to 0.40, and for lower income from 0.29 to 0.42, among those with both debt and income.
Debt to Income Ratios have risen significantly -- from 0.46 in 1983 to 1.06 in 2004 -- with middle class rising to 1.19. That is, on average, we owe more than we make per year, and that proportion has doubled in 21 years!
Between 1980-81 and 2005-06, households' share of expenditures on housing rose by 5.7%; share of spending on apparel dropped by 6.3%. To a Georgist, this suggests that we're spending a lot less on items produced and distributed by human labor, and a lot more on land -- which is not produced by human labor. Spending on things produced by human labor creates jobs. Spending on land produces rich sellers!
I'd be curious to know what federal government cost of living data is involved here:
An analysis that combined federal government cost-of-living data and survey results confirms this view. Survey respondents living in areas that rank in the top third of the country in terms of local cost of living estimate that a family income of about $75,000 a year is needed to be middle class in their areas. That’s about $15,000 higher than the median estimate of the third of the country that lives in places where costs are the lowest.
I'm surprised that the median for the top tritile is only $15,000 more than in the top tritile. I assume that the tritiles are weighted for size -- NY metro, Boston metro, SF metro in the top tritile, rural counties in the bottom tritile.
The study chooses an interesting metric about home equity. It is not clear to me whether it is a reference to the amount originally borrowed, or the maximum amount borrowed:
They allude to the importance of increases in the price of housing:
The third chapter includes this:
You might find interesting a table entitled "Party Affiliation and Ideology, By Class". Since I haven't figured out how to make a table display well in a blog post, I won't try to show it here. But I was intrigued that more a higher proportion of the lower class calls itself politically independent than is the case with the middle- or upper-class groups. And that lower and upper leaned more liberal than did the middle class.
The study lists the answers to the survey questions. This one intrigued me:
Upper class people clustered in the 8-10 range; middle class clustered at 6-7; lower class clustered strongly in the 0-5 range. The mean rating for all was 6.4; for upper, 7.3, for middle 6.7, and for lower class 5.2. The last time the overall mean was as low as 6.4 was 1989, and before that, 1985. In 1998, it was 7.1.
Another interesting statistic was that 15% of respondents with children had them in private schools; 31% of upper class, 14% of middle, 6% of lower.
Also interesting: 58% of adults in the survey report being married or living with a partner. Among upper class, 65%, middle, 59%, and lower class 49%.
Stocks and Retirement account holdings: 55% of respondents (all classes) owned no stocks; 41% had no retirement account. 84% are not business or farm owners. But 20% reported income from self-employment including a self-owned business or farm. 83% get no dividends -- likely no dividends outside of retirement accounts.
The study finds that roughly 1/3 of adults - 35% - have adjusted household incomes in the middle income category in 2006; 33% are below middle income, and 69% are above middle income. But where are our children living? Many other studies have pointed out that families with children tend to be the younger families, and one would expect to see that a disproportionate number of children are living in families with below-the-median incomes.
If we think it important to have a strong middle class and plenty of upward mobility, we need to pay attention to the structures that create opportunity and the structures that constrain it. Our middle class, even before the recent stock and housing market problems, is not nearly as secure as it once was.
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