THIS JUST IN: The Last Decade Sucked For the Middle Class

by pdxblake

A report came out, which Jared Bernstein summarized called the “Lost Decade of the Middle Class”.  There are many methodological assumptions about how to decide what is middle class, but I like a chart he posted last fall (which was coincidentally titled the same as the new report) that shows real median income of working-age households.

Source: Jared Bernstein’s blog

The reason I like this method is because it is not likely to be pulled upwards (by rising inequality) and will show the income of the ‘middle’ household who is between the lowest 50% and highest 50% of households, which sounds like a pretty representative measure of ‘middle class’ income.

As Bernstein notes, it is pretty surprising to see an entire decade where median income declined and there is perhaps a caveat that it was a decade with 2 recessions and a decade that started at the end of a good run for the middle class (which is why so many people want to return to the Clinton era).

The chart above shows the year-on-year growth in productivity (Real GDP divided by total hours worked, to give an estimate of the value of ‘stuff’ that is made on average for each hour of labor input).  This should be correlated with the household incomes of the ‘middle class’.  During the 1990s productivity grew at an increasing rate, which was continued through to around 2006 when it slowed (but kept growing).

However, the benefits from the productivity growth in the early 2000s (importantly during the non-shaded bits when the economy was growing) is not reflected in rising middle class incomes, demonstrating that a return to the Bush years (by electing Mitt Romney) are probably not the best way to benefit the ‘middle class’.