Why The Middle Class Is Shrinking, But Global Equality Isn’t

The phrase income inequality has been ringing on and off across the globe in recent decades, usually with an unsettling pitch and jittery reverb.

The United States, which once lead the world in the building of a majority middle class, has seen a notable shrinkage of medium income, while globally, research points to decreased worldwide inequality.

What’s up with the middle class?

According to Pew research, median income has been declining steadily in the United States since 2001. Only 51% of people identify as middle class, 85% of which find the status it more difficult to maintain than decades before.

In 2007, the median household income was $55,627. In 2012, according to the most recent Census data available, it fell to $51,017.

The disparity is is the highest its been since 1928, the peak of a post-civil war “Gilded Age” when privately-held capital amounted to about 5 years worth of global income. That fell with the 1937-47 “Great Compression” before a late 70’s spike in inequality called the “Great Divergence.”

Now, with 1% of the population controlling 40% the nation’s wealth, some draw perspective by making comparisons to that of Ancient Rome — but even then, the top money makers controlled less than half of that.

The middle class has been the only tier to actually shrink in size during what Pew calls the “Lost Decade of the Middle Class” (2000-2010), with middle class incomes seeing no growth as that of other countries flourished.

The top 1%, in contrast, has blossomed worldwide — especially in the United States, with the CEO-to-worker pay ratio, for example, having increased over 1000% since 1950.


Not all middle classes

Gini Coefficient numbers, which rate inequality by nation, and studies by the OECD find global surges in economic inequality. Newer research, however, points to the often overlooked statistic that, for the world as a whole, inequality is decreasing.

According to World Bank consultant Christoph Lakner and Branko Milanovic of the Luxembourg Income Study Center, most people now live in middle-income countries.

This may seem at odds with the current narrative of inequality and crisis, but in truth, the widening gap in developed nations like the US and a narrowing overall gap work together on a larger scale of globalization, with stagnation in the West correlating with Eastern equalization, especially in China.

In this light, some of the policies and circumstances that have threatened the American middle class (such as supply side economics, international trade, outsourcing, and lower-cost labor), have proven healthy for the world, lifting other countries at the unfortunate cost of Western income stagnation.

But increased inequality in America is almost certainly due to other factors aside from globalization: skill-based technology change, capital account liberalization, executive compensation, austerity, and weakened unions are other theories of potential importance.

What does it all mean?

There are many challenges facing countries like America that due to any combination of variables are seeing their once strong and stable middle class fall behind — especially since the middle class is what grows the economy, not the rich.

While even Americans in poverty are better off than most nations’ poorest, and certainly further off from the poor in Ancient Rome, it does not bode well nationally that wealth is becoming less attainable and unbalanced. With the middle class flatlining, homes, health, and education become less affordable and saving exceedingly difficult for the average American.

Lankner and Milanovic’s research warns that as developing nations become more democratic, the United States could move toward plutocracy (government controlled by the wealthy).

Still, as the New York Times notes, it is worth bearing in mind that though America is certainly in dire need of economic fixing, the bigger picture isn’t quite so grim.

We measure success by the understanding we deliver. If you could express it as a percentage, how much fresh understanding did we provide?
Jennifer Markert