In recent years many economists and politicians have criticized the existing global economic order for its inequality. They argue that the market itself cannot guarantee fair distribution of scare resources, causing the situation when some people obtain more resources than other groups of population. Consequently, some people have become richer, whereas others continue to live in poor and difficult conditions. This assumption was firstly made by Karl Marx almost one hundred years ago. Undoubtedly, every government tries to counter the problem of social and economic inequality, employing the tools that encourage the development of the middle class. Nowadays the middle class is the foundation of the vast majority of developed economies. The same statement refers to the United States of America. Although this country is known for the wide wealth gap between the richest and the poorest citizens, its stability and development has always relied on the middle class. Most of the US presidents emphasized the importance of the middle class for the American economy, policy, and even values.
Nevertheless, the economic situation has changed for the worse in the whole world, making common population poorer and poorer. Today some researches show that the American middle class is losing its ground. We are going to analyze the report prepared by Pew Research Center. The name of the report, i.e. The American Middle Class Is Losing Ground, allows us to suggest that it will support the idea of deepening income disparities in the United States. This report describes the major trends in income changes for different demographic groups of the American society from 1971 to 2014, thus we will be able to see the full and detailed picture (Kochhar, Fry & Rohal, 2015).
Firstly, the report provides the explanation and definition of major terms that are crucial for the right understanding of the created classification of demographic and income groups. Without any doubts, the major term is the “middle-income”. The report employs the following approach to define the middle-income tier. They consider the household to be middle-income one if its income equals two-thirds (66%) to double (200%) that of the US median household income. However, one important thing here is that the authors adjust incomes for household size. Making the adjustment is the necessary prerequisite because without it the data received may be misleading. For example, the average household consists of three persons, but there are such families that have more than five persons. Of course, the expenditures of the large household to maintain its middle-income lifestyle will be greater than the expenditures of the average household. Thus, the size adjustment mitigates the risk that we will consider a five-person household to be in the upper-income tier when actually its adjusted incomes will lie in the middle-income range (Kochhar et al., 2015, p. 2).
Moreover, the report has a wide classification of different income tiers. Basically, there are three large tiers, i.e. the lower-income tier, the middle-income tier, and the upper-income tier. The lower-income tier has incomes less than $42,000 annually, while the upper-income households receive more than $126,000. However, this general division cannot represent all the shifts in the most accurate manner (Kochhar et al., 2015, p. 7). That is why the authors divide the lower- and the upper-income tiers in order to see whether the changes take place on the border between the middle tier and the tiers that are above and below, or whether these changes occur within the lowest- and the highest-income households.
This classification is extremely important because the research shows that within the given period of time major shifts have taken place exactly in the lowest- and the highest-income tiers. Thus, the share of lowest-income households has increased by 4% since 1971 and now it constitutes 20%. At the same time the share of lower-middle families has remained at the same level, i.e. 9%. The same situation can be seen in the upper-income tier. The share of the richest families has increased from 4% to 9%, whereas the share of upper-middle households has grown only by 2% since 1971. On the other hand, the increases in shares of the lowest- and the highest-income tiers led to the decrease in the number of the middle-income households. Now its share is only 50%, comparing with 61% in 1971 (Kochhar et al., 2015, p. 7). Therefore, we can state that although the middle class continue to be the leading one in the USA, its weight in its economy has significantly dropped within the given period. In 2015, the number of lower- and the upper-income households equaled the number of the middle-income households for the first time in the modern US history. Some economists tend to believe that this is a tipping point.
Furthermore, another negative aspect is that the US population has become more unequal in incomes, thus the wealth gap between the rich and the poor has increased. For instance, today the upper-income families mostly control the nation`s aggregate household income, with their share being 49% in 2014. Simultaneously, the share of the middle-income tier has fallen dramatically from 62% in 1970 to 43% in 2014 (Kochhar et al., 2015, p. 4). That is additional signal for the US government authorities that the economic inequality deepens.
Figure 1. Trends in income for different income tiers. This figure shows the growth of income for every income tier from 1970 to 2014 (Kochhar et al., 2015, p. 37)
The difference in income trends for different tiers is another reason that explains why the wealth gap becomes larger in the USA (see Figure 1). We can see that the incomes of the upper-income households have increased faster than the incomes of other tiers. Generally, incomes of the rich people have increased by 47%. At the same time incomes of the poor and the middle grew only by 34% and 28% accordingly (Kochhar et al., 2015, p. 37). This difference in income growth led to the increasing gap between the poor and the rich. Nevertheless, the positive aspect here is that incomes have increased for the whole population, i.e. every tier has become richer.
However, we should mention that the income growth occurred largely in the 20th century. The beginning of the 21st century was difficult for the vast majority of households because the recession in 2001 and the Great Recession of 2007-09 negatively affected all layers of society, especially the lower- and the middle-income tiers (Kochhar et al., 2015, p. 9). Figure 1 shows that incomes reached the peak in 2000. Since 2000, there have been certain fluctuations, but the general trend is negative. The financial crisis of 2008 affected the poor and the middle people more significantly because it was preceded by the mortgage crisis. Unlike the upper-income households, the households with low and middle incomes consider their house to be one of the largest assets in their portfolios. Thus, when the whole market collapsed, these households were extremely vulnerable because they lost their major asset. On the other hand, the upper-income households performed better during the economic turbulence because their portfolios were more diversified. Of course, the decline on financial markets hit the bonds and stocks owned by them, but these financial instruments started to recover their previous value. Thus, the diversification of portfolios helped the rich mitigate the negative impact of the Great Recession. Another problem that is connected with the financial position of the poor is that they are more likely to accumulate debts than the rich.
Now it is time for us to proceed to the analysis of different demographic groups. We have already discovered the trends for different tiers and for the American population as a whole, but it is of the greatest importance to understand the shifts in incomes within smaller groups of population. Although most of the Americans have improved their position since 1971, there are some groups that lagged behind. For example, the biggest winners are people aged 65 and older. In 1971, the share of pensioners living in the lower-income households was 54%. In 2015 this indicator constituted 36% (Kochhar et al., 2015, p. 19). Of course, the position of the older people remains to be bad, but even though we should state that this is a significant improvement. There are two reasons that explain it. Firstly, the behavior of the older people has changed, and now they tend to work after they are 65. Secondly, the social programs launched by the US government also create the additional sources of income for the older people. Therefore, the people aged 65 or more now have more ways to receive greater amount of money.
The black people are also big winners. In 1971 the share of black in lower-income tier was quite big, i.e. 48%. In recent years the situation has changed for the better, and this share has declined by 5%, while the share of the upper-income tier has increased by 7% (Kochhar et al., 2015, p. 22). The respect for and observance of human rights and fundamental freedoms favored better employment opportunities for the black people, thus allowing them to earn more money than they could previously.
The report also states that people born in the USA are more likely to receive greater incomes than immigrants (Kochhar et al., 2015, p. 23). The best explanation here is that the immigrant flows can be divided into two types, i.e. the flow of high-skilled workers and the flow of unqualified of low-skilled workers. The second flow is traditionally larger than the first one. The workers without the proper education are less likely to get well-paid job. That is why our statistics show that native citizens seem to perform better than the immigrants.
One curious notion is that unmarried citizens are poorer than the citizens who have already established the marriage (Kochhar et al., 2015, p. 20). However, the marriage itself doesn`t influence the financial position of the individual. The difference in incomes can be explained with two simple concepts. Firstly, people usually marry when they already have the certain amount of savings and the stable and reliable source of income. Secondly, people tend to finish their education and only then marry. That is why incomes of married people are higher than incomes of their unmarried colleagues.
We have already mentioned above that education allows people to receive better jobs with higher salaries (Kochhar et al., 2015, p. 25). Thus, people with better education are more likely to be in the middle- and the upper-income tiers. Moreover, the salaries paid for high-skilled occupations have risen. That is why executives and managers, professional specialties and technicians are among the biggest winners. People employed in farming, forestry and fishing have also faced improvement because their occupations have become more technologically advanced, thus requiring better skills to run the production process. On the other hand, teachers have faced one of the strongest decreases (Kochhar et al., 2015, p. 26). Generally, we can state that the composition of the middle-income tier in 2015 reflects the nation`s demographics in more accurate manner than the composition of this tier in 1971 (Kochhar et al., 2015, p. 31).
References
Kochhar, R., Fry, R., Rohal, M. (2015, December 9). The American Middle Class Is Losing Ground. Retrieved from http://www.pewsocialtrends.org/files/2015/12/2015-12-09_middle-class_FINAL-report.pdf
