U.S. middle class shrank during 1970s and 1980s

March 08, 1992|By Craig Stock | Craig Stock,Knight-Ridder News Service

The U.S. middle class shrank markedly between 1969 and 1989, as the number of Americans who were rich and poor increased.

In 1969, 71.2 percent of Americans were "middle class." Twenty years later, 63.2 percent were middle class, a new Census Bureau study found. The study defined middle class as anyone with income ranging from 50 percent to 199 percent of the national median, or midpoint, income level.

High-income individuals -- those with incomes two or more times higher than the median -- increased from 10.9 percent of the population to 14.7 percent.

Low-income individuals -- those with incomes less than half of the median -- increased from 17.9 percent of all Americans in 1969 to 22.1 percent in 1989.

Median income for a family of four was $37,152 in 1989, so such a family with income below $18,576 was considered low-income. A four-member family with income of $74,304 or more was considered high-income.

The Census Bureau report did not attempt to determine why inequality of income distribution increased. But the study is likely to spur moves to make the nation's tax system more progressive, such as the proposal by congressional Democrats to raise tax rates for those with high incomes.

Jack McNeil, a Census Bureau economist who did the study, said that the distribution of wages -- the biggest component of family income -- has become more skewed.

College graduates "are doing all right basically. But the good-paying jobs that used to go to people with high school educations seem to be disappearing," Mr. McNeil said.

Adding to income inequality, he said, are simultaneous increases in the number of families with two wage earners and in the number of families in which no one works.

Mr. McNeil thinks his study understates the degree of inequality. That's partly because it doesn't include income from capital gains -- profits people get from the sale of assets such as stocks, bonds or real estate. Also, he said, people with high incomes tend to under-report their income. On the other end of the income scale, the report includes cash welfare payments but does not count as income non-cash benefits such as food stamps or Medicaid.

"I would guess this presents a fairly conservative view of the amount of inequality," Mr. McNeil said.

Rising income inequality began in the 1970s, though the pace picked up in the 1980s. Other Census Bureau data show that the poorest 20 percent of the population had 5.5 percent of overall income in 1973, but that fell to 4.6 percent in 1989. Meanwhile, the share that went to the richest 5 percent of the population rose from 15.5 percent to 17.9 percent.

A big reason the middle class feels squeezed is that wages for the typical worker have lost ground to inflation over the last 20 years. After adjusting for inflation, average pretax weekly pay of U.S. workers is now 11 percent "lower" than in the peak year, 1972.

A lowering of the "social safety net" has hurt those at the bottom of the economic ladder. Alan Blinder, a Princeton University economist, reckons that payments from Aid to Families with Dependent Children and food-stamp benefits lagged inflation 30 percent between 1972 and 1988. He also noted that the poor benefited little from tax cuts and savings incentives enacted in the 1980s. The affluent, who hold most financial assets, benefited greatly from those trends, which boosted asset values and produced higher interest and dividend incomes.

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