August 10, 2020; Brookings Institution
Even before COVID-19, the United States was coming apart, as the gap between haves and have-nots grew and grew. That’s the central message of two recent reports from the Pew Research Center and the Brookings Institution.
At the beginning of the year, before COVID-19 struck, the Pew Research Center found that while the overall economy had finally healed from the Great Recession, the recovery was uneven. Over time, the middle class has been steadily evaporating:
The growth in income in recent decades has tilted to upper-income households…at the same time, the US middle class, which once comprised the clear majority of Americans, is shrinking. The share of American adults who live in middle-income households has decreased from 61 percent in 1971 to 51 percent in 2019. This downsizing has proceeded slowly but surely since 1971, with each decade thereafter typically ending with a smaller share of adults living in middle-income households than at the beginning of the decade.
Even during periods where the economy saw significant expansion, the gaps widened, rather than contracted:
Upper-income families were the only income tier able to build on their wealth from 2001 to 2016, adding 33 percent at the median. On the other hand, middle-income families saw their median net worth shrink by 20 percent and lower-income families experienced a loss of 45 percent. As of 2016, upper-income families had 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families. These ratios are up from 3.4 and 28 in 1983, respectively.
Using a common measure of income inequality, which compares the income needed to be ranked in the top 10 percent against that of the bottom 10 percent, Pew found that in 1980, the ratio in the US stood at 9.1, meaning households at the top had incomes about nine times the incomes of those at the bottom. The ratio increased every decade since 1980, reaching 12.6 in 2018, an increase of 39 percent.
Stephen Rose of George Washington University (and a fellow at the Urban Institute), in a report entitled Squeezing the middle class, recently published by the Brookings Institution, took a deeper look at these trends. He found that the gap has grown faster since the start of the 21st century began.
Between 1967 and 1981, median family income rose…more than three times as much as the eight percent growth experienced in the period between 2002 and 2016…Three times as many people in the later 15-year period experienced a large loss, defined as a drop of more than 25 percent, compared to the earlier period (12 percent versus four percent). Overall, the share of people losing ground (a loss of income of at least five percent) doubled from 15 percent to 30 percent in the last period. Many fewer experienced a large gain (33 percent versus 53 percent).
He found that upward mobility also slowed. Between 1967 and 1981, 43 percent of those with household incomes of less than $32,500 had moved up the scale, but between 2002 and 2016, that number decreased to 35 percent. For those classified as “lower middle class,” with incomes between $32,500 and 54,500, “just six percent moved [downward] in the first period versus 18 percent in the later period, showing a much more economically precarious existence for those in low- to moderate earnings jobs.”
Rose adds that, “Education matters more than ever in terms of securing a place in a high or even middle-income bracket,” and, that as a result of unequal access to those education benefits, “there has been a significant increase in the number of Americans experiencing downward mobility.”
In sum, the nation with the world’s largest economy also has income inequality that is increasingly an outlier, far greater than other nations like Canada or Germany. As NPQ noted back in May, “Our lack of mutual care is now a major pre-existing condition.”
Even prior to the pandemic, the social fallout of inequality was all around us. Large sections of the country lack needed investment. Our national infrastructure, most needed by those with limited wealth, was aging and crumbling. The social safety net was fraying and unable to provide needed support. A growing number of households were extremely vulnerable to even the smallest disruption to their economic lives.
Then came COVID-19, costing the United States 170,000 lives so far, creating massive unemployment, and threatening permanent damage to the nation’s economy and civil society. When the virus fades away, will we build a more equitable economic system then? To fail to do so would mock our nation’s claim to promote equal opportunity for all.—Martin Levine