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It is common to speculate whether the middle class is growing or shrinking. To understand the middle class, it is necessary to first define what it means to be “middle class” in America. While definitions vary, one way to define it from a data perspective is the middle 20% of income-earners.
By definition, the middle 20% will always include one-fifth of the population, so the better question might be “how is life for those in the middle changing?” Comparing families and individuals in this group in 2000 and 2017 illuminates three ways in which their lives are changing.
The middle 20% shares some key demographic characteristics with the general population. Like the American population as a whole, those in the middle are getting older. This group included 43% more retirees in 2017 than in 2000 and the average age for heads of families increased from 47 to 49 years old.
Unmarried, non-elderly individuals increased from 50% of the middle class in 2000 to 56% in 2017. While this trend holds true for the country generally, it is less pronounced – unmarried, non-elderly people in the US increased from 43% to 45% over the same time period.
The percentage of individuals and families in the middle class who are working has fallen 3 percentage points, from 73% in 2000 to 70% in 2017. Those members of the middle class who are working are earning less as of 2017 than they were in 2000. The average wage income fell 11%, from $38k to $34k, adjusting for inflation.
This may be due in part to the fact that the average number of hours worked per week has also dropped, from 43 to 39 hours per worker. A decrease in the average number of hours worked makes sense given the decrease in the number of wage earners per family and the increase in retirees.
In addition to wage income; investment income has also fallen. Income from interest, dividends, and capital gains decreased from 2000 to 2017. However, private retirement income increased by 54%, likely driven by the increase in retirees.
Of the total income earned by the middle class, the percent of income from government transfers has grown from 19% in 2000 to 28% in 2017. This means that despite falling wage income, total income for the middle class increased from $64,280 to $67,629 due to government transfers. This trend holds true for the country as a whole - on average, transfers accounted for 17% of total income in 2017, up from 12% in 2000.
Despite earning less from wage income, the middle 20% makes more in total income than in 2000 when including transfers from government programs such as Social Security, Medicare, Medicaid, SNAP (food stamps), and unemployment insurance.
The increase in transfers to the middle 20% may be driven by the demographic changes we’re seeing in this cohort. An older population means that a greater share is receiving payments from Social Security and Medicare. These two programs drove 38% of the increase in transfers to the middle class.
Government spending on healthcare for the middle class, including programs such as Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), has also increased. Medicare payments increased from $2,556 to $4,437 per family unit, while Medicaid spending more than doubled, from $1,629 to $3,933. Meanwhile, employer-sponsored healthcare declined 12% in the same time period.
Other income-based assistance programs to families and individuals have also increased. Payments from the Supplemental Nutrition Assistance Program (food stamps) and Temporary Assistance for Needy Families increased 281% and 32% respectively from 2000 to 2017.
The middle class is affected by the same demographic changes affecting the population generally, namely an aging population and a decrease in marriages. This cohort is working less and earning less. However, the government is maintaining the middle class’ standard of living through higher transfers and lower taxes.
We combined IRS tax data with Census data to produce a variety of demographic and financial statistics by income and family type.
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