
Researchers answer a question about the decline of the middle class - mortenjorck
https://www.washingtonpost.com/news/wonk/wp/2017/05/08/researchers-have-answered-a-big-question-about-the-decline-of-the-middle-class/
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TimJYoung
The peak for the average worker seems to revolve around 1965-1970, based upon
various stats that I've read. This jives with my personal experience also. My
father, who was employed in manufacturing as a foreman (and later, cost
accountant, after earning his degree), was on his way up until the late 1970s.
It was right around that time that manufacturing operations in the midwest and
northeast started their first moves toward lower labor costs by relocating
plants to the south and southeast (later, even this would not be enough and
they would move to Mexico, China, etc.). The main purpose seemed to be union-
busting. It practically killed our family, financially. My parents used up all
of their savings (quite a bit, I might add) while my father tried, in vain to
find employment. They had to sell their custom-built dream home (think modest
70s home, not modern McMansion monstrosity), and we were, technically,
homeless for half a year while we lived with my aunt/uncle. My father
eventually found employment as a cost accountant, but we had to uproot our
lives and move to Florida. And, more importantly, my father's real earnings
_never_ recovered and he never got back to the level he had previously earned.

There's a lot of evidence to show that all of this was intentional and
orchestrated:

[http://www.laborrising.com/2013/07/union-organizing-and-
the-...](http://www.laborrising.com/2013/07/union-organizing-and-the-business-
roundtable-and-american-labor/)

Note, this was written in 1979, after about 10 years of the effects of the
efforts of organizations like the Business Roundtable.

BTW, I can't help but add: the small hometown where I grew up in the midwest
now has a pretty bad Oxy/Heroin/Meth problem on its hands.

~~~
prostoalex
> The peak for the average worker seems to revolve around 1965-1970

The era also coincides with massive amounts of women entering the workforce.

~~~
TimJYoung
Yes, but they weren't closing and re-locating entire manufacturing plants
because women were entering the workforce.

------
folli
Summary:

On average, workers born in 1942 earned as much or more over their careers
than workers born in any year since

The trend has also widened the gap between the rich and everyone else as,
overall, the economy has continued to grow overall but the bulk of those gains
have ended up in the pockets of the affluent.

While economists have been concerned about recent data on earnings, the new
paper suggests that ordinary Americans have been dealing with serious economic
problems for much longer than may be widely recognized.

The new research shows that in the past, a good guide to forecasting typical
career earnings among Americans of a given age has been their average income
they were 25.

Young workers’ incomes are still declining today, suggesting that their
trajectories over the rest of their careers will be lower as well.

~~~
TimPC
I suspect that the at 25 income prediction will be less and less accurate as a
predictor given high value PhD's. In the past the rarity of those programs
might have covered up the problem with using those estimates for that group,
but as it grows it probably creates substantial challenges for such a metric.
Similarly, with start-ups becoming more popular, income at Age 25 might value
options at 0 and lead to an underreported value for anyone in a successful
exit. Willingness to take risk with low income when young, might also lead to
situations where founders are reporting 0 income at 25, but are likely to have
successful careers regardless of whether they exit.

~~~
Thrymr
Statistically, those high value PhDs and successful exits are way off on the
high end of the tail of the distribution for all 25-year-olds. I suspect they
are not going to budge the median values at all.

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rdlecler1
The article also doesn't take into account education and housing debt. Not
only do you make less, more of what little you make goes toward things that
would have been paid off after a few years. Add to that the expectation that
the younger generation is footing the Medicare and social security bill for
baby boomers and you have a case of generational servitude.

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eric_b
I take most of these articles with a grain of salt. The Washington Post has
not (lately, at least) been a source of hard hitting analysis. Additionally,
this study has not been peer reviewed, but they certainly treat it as though
it has.

Looking at the charts and the analysis - one concern raised is that workers
starting out in 2010 had lower real wages than their counterparts from 1969.

A really simple explanation might be that in 2010 we were still in the deepest
part of the biggest recession in recent history. What do you think that would
do to starting wages?

I know there is a narrative they are trying to tell, but in the past 12-24
months they are so obviously biased I simply don't believe anything they write
anymore.

Edit: I might add that I worry very much about the decline of the middle
class. The problem is I don't trust any news source to tell me objective
truths, and the more I dig for this information the more the black and white
rhetoric doesn't seem to fit.

~~~
hn_throwaway_99
You are cherry picking on the 2010 issue. The graphs show lines for the
beginning of every decade since 1980. The year 2000 was basically the peak of
the .com bubble, and it still showed 25 year olds making less than 25 year
olds in 1980.

I get your point about selecting data from any individual year, but the trend
lines shown in the graphs cover entire periods.

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tomjen3
I have seen a ton of these kinds of articles posted here over the years, but
none of them touches on what PG wrote in one of his essays: the reason
salaries were so high after the war and until the 70is were that the US was
the only country that had a modern, intact industrial base and so it was worth
it for the companies to overpay for labor, in the same way that it is worth it
for a start-up to overpay for e.g servers.

Later, after the boom, they started to cut their overspending.

~~~
6stringmerc
So where did the "excess" from the "overspending" go in your model? Surely it
didn't bring up the standard of living worldwide, because we'd have noticed it
by now. No, your term "overspending" is far too loaded for me to believe in.

I am far more inclined to believe the Investor Class has been doing their
damndest to widen the wealth gap at every opportunity since WWII, and wouldn't
you know it, all the numbers add up. It's much more like there was a healthy
dynamic between management, investors, and the working class, and it's all
been shot to shit in the name of quarterly profiteering and Ayn Rand
"bootstrap" delusions.

~~~
tomjen3
After World War II, about the time the US was about to begin its boom, people
in Holland had to go out near the coal trains so that they could pick up
whatever coal had fallen off the trains, or they would have nothing to heat
their homes with; Germany was flattened as was Japan and Korea. Meat rationing
in the UK did not end until July 4, 1954 – that's almost a decade after the
war. Japan did not start getting back on its feet until the Korean War.

I have been to Germany and I can personally assure you that the life they live
now is nothing like it was in 1950. So yeah, there's your rising standard of
living worldwide. Key point _worldwide_, although some of it also happened to
US.

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nimos
I think it is actually a lot worse than household incomes suggest. Having a
parent stay home is tremendously valuable to a household in providing
childcare, food preparation and all sorts of other valuable labour. None of
this gets measured in incomes/GDP but as soon as you have both parents working
and paying for childcare, paying for prepared meals and so on it does get
measured in household income and GDP. So when we just look at household income
we're actually underestimating the decline because there also used to be more
unmeasured value provided by stay at home parents.

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nnfy
I don't mean to be sexist, but I've wondered purely out of curiosity if the
decline in wages is related at all to the entry of women into the work force.
You've nearly doubled the number of wage seekers without necessarily
increasing the supply of jobs.

I also wonder if two income earners are likely to earn more money than a
single income earner for a given labor demand, considering overhead of
employment, which I think has also increased over time (e.g. benefits). That
couple explain some of wage stagnation, I'd bet.

~~~
eric_b
I don't think you're being sexist. I think that's a very good question. If we
roughly double the supply of labor, but have roughly the same number of jobs -
what would happen? Wages would naturally go down. It's obviously not that
simple, but there's good reason to believe that the entry of more women in to
the labor force put downward pressure on wages.

What will be interesting is if the more recent trend of young men leaving the
labor force will put upward pressure on wages, or if the jobs will just
disappear.

~~~
runT1ME
Why would we have the same number of jobs? If more women are working who
didn't before, they will need some way to commute to said job, to buy work
clothes as well as leisure clothes, have more disposable income, etc.

~~~
eric_b
Yep, that's why I said "it's obviously not that simple". I also described
"downward pressure" on wages, not a cutting of wages in half.

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tailrecursion
When I see a statement such as, Income in men declined 10-19% over several
decades, I think:

OK. Why? Is the ratio of young/old different from before? Were those living on
social security included in those stats? What does that have to do with wages?
Is it because men are choosing different jobs? Is it because they are working
fewer hours? Is it because they are choosing to earn less, because cable TV
and internet connection are enough? Is it because cars cost less? Is it
because, generally over the population, men are choosing activities other than
work? Is it because feminists have changed women who have changed men into
deciding not to marry women, generally over the population, which reduces the
drive or opportunity to pursue larger incomes? Is the pay hidden somehow, more
now than before, going to medical costs instead of salary?

The conclusions in the news article depend heavily on definitions for "middle
class" and "workers" and seem to assume that wealth equals money and that
income equals wages.

~~~
Spooky23
Consider that women and African Americans were exclusively fenced off on the
fringes of the workforce.

Between increased domestic supply of workers, increased supply of foreign
workers, globalization and demographic drag as we need to pay the pensions of
the baby boomers with smaller cohorts of workers. Combine that with anti-labor
policies and its a no brainer why earnings are dropping.

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tboyd47
I wonder when it is going to become clear that America's economic growth has
peaked.

I recently read that Warren Buffet made the point in 2006 that in order for
America to continue growing as it has for the last century, the Dow would have
to surpass 2,000,000 by 2099, and during the years 2000-2006, it didn't grow
at all from its place at roughly 11,000 (but now it appears to be growing
again).

Sidestepping the question of whether or not it _has_ peaked, and when that
peak was/is, it seems to be in everyone's best interest to at least pretend
that it has not, and perhaps, will never.

~~~
hackuser
> America's economic growth has peaked

I assume you mean, the size of the economy has peaked. The rate of growth was
never thought to be increasing (i.e., it didn't grow 4% one year, 4.1% the
next, etc.).

This question is answered by well-known data, GDP growth. That popular number
represents, effectively, the increase in the economy's size every year. The
U.S. economy has grown and continues to grow every year since 1950, with the
only exception being 2008, the worst year of the Great Recession.

[http://www.multpl.com/us-gdp-growth-rate/table/by-
year](http://www.multpl.com/us-gdp-growth-rate/table/by-year)

~~~
tboyd47
I'm not talking about the _rate_ of growth peaking. I'm talking about the size
of the economy.

You've only illustrated my point. Everyone is very highly incentivized to
believe that the growth of the economy is infinite. I mean, just look at the
numbers! It only grows, never shrinks.

Is it really possible for economic activity in a country to grow forever with
no upper limit? If not, then what's the upper limit?

~~~
hackuser
An interesting question, but I think theoretical at this point. The evidence
is very strong, not only in the U.S. but in other advanced economies who all
perform similarly. In addition to the evidence, expert opinion (economists)
seem unanimous; that is, I've never heard one say otherwise.

Fundamentally, the size, i.e., the output of the economy is easy to compute:
_Inputs_ (resources, such as labor and capital) x _Productivity_ (how much
benefit is wrung from the same resources).

The inputs generally increase. One major input that increases is labor. As the
population grows, there are more people doing productive work. Productive
workers, which is almost everyone with a paying job and very many without one
(homemakers, volunteers, etc.), produce more than they consume - an important
point. It's not a zero-sum situation; adding people doesn't reduce everyone's
slice of the pie, it makes the pie bigger.

Productivity also increases. You see it in SV every day, with better and
better software, as one simple example. Every improvement in knowledge and
technology, in every field, adds to productivity. Is there a limit to
productivity? It's hard to imagine, but if there is then we're nowhere near
it.

> Everyone is very highly incentivized

Or maybe the evidence is very strong. For example, is everyone is incentivized
to believe the theory of gravity, or is the evidence very strong?

~~~
tboyd47
I appreciate that business is not zero-sum, but what happens to a non-zero sum
when parts start getting subtracted from it? The population is growing at a
rate of about 1%, but labor participation is down around 14 million people
since 2002, and has not started to bounce back. And how does widespread
underemployment, a growing deficit, and billions of dollars in debt owned to
foreign countries play into the picture?

Call me Chicken Little but I don't see how economists can be optimistic about
growth until all or at least some of these trends start going in reverse.
Economic growth doesn't just result from coming up with snazzier software - it
requires citizens to acquire and deploy capital.

~~~
hackuser
A few thoughts, though I'm not an economist:

* 14 million is a big number, but it's less than 5% of the U.S. population. I do agree that it's a serious concern, but because of the welfare and economic opportunity for those people, and because of the social disruption of economic inequality; the economy in aggregate is doing well. For those interested, you can find the numbers here (you can adjust the years at the top): [https://data.bls.gov/timeseries/LNS11300000](https://data.bls.gov/timeseries/LNS11300000)

* Debt is a bad word colloquially, but in finance / business / economics, it's actually a great efficiency: Instead of useful resources (e.g., money) sitting around unused (e.g., in a vault), they are lent out to others to make productive use of. Financial institutions are like Airbnb for money - others get to rent your asset while you don't need it, and you make something from it. Borrowing is fine as long as you are generating more income from the borrowed funds than it costs you - e.g., as long as the software you build with the borrowed funds earns a better return than the interest you owe. Generally, that works out well or people wouldn't have a reason to lend or borrow.

* As of December 2015, of the total U.S. federal government debt, 40% was held by foreigners. Interest paid was $94.9 billion that year. The U.S. economy was ~18 trillion that year, so the debt service was ~1/180th of U.S. income; not a problem. Source: [https://fas.org/sgp/crs/misc/RS22331.pdf](https://fas.org/sgp/crs/misc/RS22331.pdf)

~~~
tboyd47
I'm glad you're not an economist, because neither am I!

I'm of the mind that the recent jump in indicators like GDP and the Dow are
more likely a result of corporate stock buyback programs than any real
recovery. Corporate America spent about 4% of GDP on buybacks just last year.
Meanwhile the GDP grew by half that amount. Stock buybacks are specifically
designed to move stock prices higher.

I understand that debt can be used strategically, but America is running
consistently in the red. So although the part of the national debt that's
foreign-owned is small, it represents wealth that has permanently left the
country.

~~~
tboyd47
Eh, never mind. Guess I assumed that stock prices are included in GDP. Turns
out they aren't.

------
golemotron
Technology is the elephant in the room, isn't it?

It's possible to make money with fewer and fewer employees, and it takes less
money to meet our basic needs and entertain ourselves. The result is declining
birth rate and income. It is going to continue in this direction and we don't
know what to do about it.

~~~
FullMtlAlcoholc
Has the percentage of income spent on food and housing gone down?

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neves
When the syndicates stopped to get some respect from workers? It looks like
correlated to the lowering of wages.

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prewett
I thought the question was going to be "why?" but instead the question they
purported to answer was "when did it start?" Kind of a click-baity headline by
the WP; I wish they had a "did not meet expectations" button :(

------
DiffEq
The middle class is decreasing mainly because of divorce and thus the creation
of single parent homes; additionally middle class families leave the middle
class because BOTH parents work and thus moving them into the upper class -
when if one of them worked they would stay in middle class.

~~~
logfromblammo
If the majority of your income comes from salary or wages, you are not in the
upper class, no matter how high that number is. The primary defining
characteristic of the upper class, in my opinion, is supporting your lifestyle
via your ownership, rather than your labor.

Certainly, there is some fuzz and overlap there. A retiree earning $50k/year
on dividends and capital gains meets that criterion, while a top-shelf skilled
professional or DINK couple earning $400k/year solely from working 40 hours
per week (each) does not. The latter could certainly become upper class rather
easily just by paying off debt, avoiding unnecessary expenses, and dumping
excess cash into index funds, but as long as that plan can be cut short by two
simple words ("you're fired") they haven't crossed that class boundary yet.

Generally, when the middle class shrinks, it isn't because a significant
portion of them are becoming upper class. More often, it is because expenses
rise faster than prevailing wages. The mark of the middle class, to me, is
being able to comfortably pay all living expenses with all adults in the
household working no more than one full-time job (probably salaried, but not
necessarily) at 40 hours per week. You can get everything you _need_ with just
one job, and some of what you merely _want_.

The instant you cross that line where you have to abandon desires and work
longer to make ends meet, you're in the lower class. There are certain needs
in the US that are not actually survival-level necessities, but rather
mandatory to meaningfully participate in civil society. Those have expanded.
In earlier decades, you essentially just needed a motor vehicle, a location-
based telephone number, and a mailing address. Now, you also need one or more
person-based telephone numbers, an Internet connection, and various forms of
insurance. Expense categories expanded, even as costs for each expense rose.
Median wages stayed stagnant. So people drop out of the middle class. They
stop going to the movies and take on more hours or a part time job in order to
pay their phone bill.

~~~
Pokepokalypse
>Median wages stayed stagnant. So people drop out of the middle class. They
stop going to the movies and take on more hours or a part time job in order to
pay their phone bill.

But we can get that "side-hustle" now, so that makes it all right?

~~~
logfromblammo
Right. Those Uber ads are rather tone-deaf to fears of downward class
mobility. They try to paint the company as helping middle-class people earn
extra money to buy the things they want, when in actuality the majority of
rides are driven by lower-class people that are trying to earn their living as
drivers.

One person's second job may be another's primary source of income.

