Study: Percent of income held by middle class is shrinking

WASHINGTON – The middle class is receiving less of America’s total income, declining to its smallest share in decades as median wages stagnate in the economic doldrums and wealth concentrates at the top.

A study released Wednesday by the Pew Research Center highlights diminished hopes, too, for the roughly 50 percent of adults defined as middle class, with household incomes ranging from $39,000 to $118,000. The report describes this mid-tier group as suffering its “worst decade in modern history,” having fallen backward in income for the first time since the end of World War II.

Three years after the recession technically ended, middle-class Americans are still feeling the economic pinch, with most saying they have been forced to reduce spending in the past year. And fewer now believe that hard work will allow them to get ahead in life. Families are now more likely to say their children’s economic future will be the same or worse than their own.

In all, 85 percent of middle-class Americans say it is more difficult now than a decade ago to maintain their standard of living. Some 62 percent say a lot of the blame lies with Congress. A slight majority say a lot lies with banks and other financial institutions. Just 8 percent blame the middle class itself.

“The job market is changing, our living standards are falling in the middle, and middle-income parents are now afraid that their children will be worse off than they are,” said Timothy Smeeding, a University of Wisconsin-Madison economics professor who specializes in income inequality.

He said many middle-income families have taken a big hit in the past decade as health care costs increase, mid-wage jobs disappear due to automation and outsourcing, and college tuition mounts for those seeking to build credentials to get better work. In the meantime, more-affluent families have fared better in net worth because they are less dependent than lower-income groups on home property values, which remain shriveled after the housing bust. Wealthier Americans are more likely to be invested in the stock market, which as a whole has been quicker to recover from the downturn.

“These are the disaffected middle class who work hard and play by the rules of society, but increasingly see their situation declining by forces beyond their control,” Smeeding said in an interview. “No matter who is president, the climb back up for the middle class and the recovery will be slow and often painful.”

The Pew study is just the latest indicator of a long-term trend of widening U.S. income inequality. The Census Bureau reported last year that income fell for the wealthiest – down 1.2 percent to $180,810 for the top 5 percent of households. But the bottom fifth of households – those making $20,000 or less – saw incomes decline 4 percent.

The new study reviewed 2010 data from the Census Bureau and Federal Reserve, defining “middle class” as the tier of adults whose household income falls between two-thirds and double the national median income, or $39,418 to $118,255 in 2010 for a family of three. By this definition, “middle class” makes up about 51 percent of U.S. adults, down from 61 percent in 1971.

In 1970, the share of U.S. income that went to the middle class was 62 percent, while wealthier Americans received just 29 percent. But by 2010, the middle class garnered 45 percent of the nation’s income, tying a low first reached in 2006, compared to 46 percent for upper-income Americans.

Since 2000, the median income for America’s middle class has fallen from $72,956 to $69,487.

“The notion that the middle class always enjoys a rising standard of living is a big part of America’s sense of itself. And in modern times, it’s always been true – until now,” said Paul Taylor, executive vice president of the Pew Research Center.

“Middle-class Americans still have faith in the future – their own, their children’s, the country’s. But their outlook is not as rosy now as it was before the recession began,” he added.

Among the findings:

• Who’s to blame: Of the self-described middle-class Americans who say it is more difficult now than it was a decade ago to maintain a standard of living, 62 percent say “a lot” of the blame lies with Congress. About 54 percent say the same about banks and financial institutions, while 47 percent say large corporations, 44 percent point to the Bush administration, 39 percent cite foreign competition and 34 percent find fault with the Obama administration. About 8 percent say the middle class itself deserves a lot of the blame.

• Feeling pinched: About 62 percent of middle-class Americans say they were forced to reduce household spending in the past year, compared to 53 percent who said so in 2008. Separately, roughly 42 percent of middle-class adults say their household’s financial situation is worse now than before the recession began, compared to 32 percent who reported they are now better off and 23 percent who said their finances are unchanged. Of those who said they were worse off now, about 51 percent said it will take at least five years to recover, including 8 percent who said they will never recover.

• Diminished hopes: About 63 percent of the general public – including 67 percent of the middle class – agree that most people who want to get ahead can make it if they’re willing to work hard, down from 74 percent of the public who believed so in 1999. As for their children’s future, 43 percent in the middle class say their children’s standard of living will be better than their own, compared to 47 percent who say it will be worse (26 percent) or the same (21 percent). In 2008, 51 percent said their children’s future would be better, compared to 19 percent who said worse and 21 percent who said it would be the same.

• Picking a president: About 52 percent of self-described middle-class adults say President Barack Obama’s policies in a second term would help the middle class, while 39 percent say they would not help. In contrast, about 42 percent say that electing Republican challenger Mitt Romney would help the middle class, while 40 percent said it would not help. People who identify as middle class are more likely to lean Democratic (50 percent) than Republican (39 percent).

• Declining wealth: Median net worth for the middle class fell 28 percent over the last decade, from $129,000 in 2001 to $93,000, wiping out two decades of gains. Among upper-income families, net worth edged higher from $569,000 to $574,000. Lower-income families saw net worth fall 45 percent to $10,000.

The Pew survey involved telephone interviews with 2,508 adults, including 1,287 people who identified themselves as middle class, conducted from July 16 to 26. The margin of error was 2.8 percentage points for the total sample, 3.9 percentage points for those in the middle class.