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The Shrinking Middle Class

The United States has the smallest middle class among nine major developed countries, according to a new research brief released this week by the American Institute for Economic Research.

In the brief, author Steven Pressman points to how many different definitions there have been of the middle class, and develops his own definition.

He defined the middle class in 2013 as $54,281-$162,033 for a family of four. This range, Pressman notes, includes those households with a disposable income of two-thirds to twice the median income for their household size. The lowest end of the range is roughly twice the U.S. poverty rate.

The U.S. middle class, as he defines it, shrank from about 59 percent in the late 1970s to 55 percent in 2000, and 53 percent in 2007, down to roughly 51 percent in 2013, Pressman wrote.

According to Pressman’s measurements, the U.S. has the smallest middle class among the nine developed countries he examined, as of 2010, the last year data was available for all of those countries. The nine also include Canada, the United Kingdom, Germany, France, Italy, Finland, Sweden and Norway.

The highest in 2010 were both France and Norway, with around 68 percent apiece.

“Nobody has had a decline in the middle class anywhere near the United States, and everything looks very different, country to country. It’s not likely a problem that is international in its focus, but something specific to the individual countries themselves,” Pressman said.

Globalization and technical change is a cross-border phenomenon, with similar effects in the traditionally industrialized countries, Pressman said. The differing sizes of the middle class in each country have more to do with explanations that are specific to each country, like social or economic policies, or demographics, he said.

The middle class, he notes, does particularly poorly during recessions. Median household incomes dropped during the Great Recession, shrinking the size of the middle class throughout the developed world, he said.

The research brief is available here, and a longer version which explains his research in detail and justifies the methodology employed in the study is available as an AIER Working Paper, which can be found here.

Pressman was a visiting fellow at AIER in summer 2015. He is currently Professor of Economics at Colorado State University and author of Understanding Piketty’s Capital in the 21st Century (Routledge, 2015).

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