Squeezed Up, Nine Years Later

Mark Perry writes,

America’s “middle class” did start largely disappearing in the 1970s, but it was because they were moving up to a higher-income category, not down into a lower-income category. And that movement was so significant that between 1967 and 2009, the share of American families earning incomes above $75,000 more than doubled, from 16.3% to 39.1%.

Nine years ago,I wrote,

the middle has shrunk, from 22.3 percent of households to 15.0 percent…the two categories below the middle also have shrunk, from 52.8 percent of households to 40.9 percent. Adjusting for inflation, the percentage of households with incomes over $50,000 has climbed from 24.9 percent in 1967 to 44.1 percent in 2003.

5 thoughts on “Squeezed Up, Nine Years Later

  1. Well, yes, but the proportion of dual-income households has also increased dramatically since 1967, and we don’t count the value of past household production.

    Also, there is the problem of calculating inflation when we don’t explicitly define what we mean by ‘middle class lifestyle’. This ties in with Sailer’s “Affordable Family Formation” concept.

    For example, in real-estate, it is common to separate the appraised value into improvements and land. What has happened to the land value of ‘quality’ locations over time? By ‘quality’ I mean mostly ‘good public school’ and ‘low crime’.

    It’s a question of Affordability. What is the ratio between the median wage and ‘quality’ land? Has the ability of a single-earner household to live in a safe neighborhood with good schools increased or decreased with time? Obviously the distance from urban centers makes a large difference, but cheaper plots in the exurbs ignores offsetting commuting and congestion costs.

    That is, I suspect that the past American Dream of the modest but quality Middle Class Lifestyle achievable on a single wage has not become easier, to achieve.

    My impressions are both that it has become more difficult, and that household production is greatly valuable. I’m open-minded about it, but I’d like to see an analysis that focuses on the quality real-estate aspects of this question instead of using CPI.

    • It’s a question of Affordability. What is the ratio between the median wage and ‘quality’ land? Has the ability of a single-earner household to live in a safe neighborhood with good schools increased or decreased with time? Obviously the distance from urban centers makes a large difference, but cheaper plots in the exurbs ignores offsetting commuting and congestion costs.

      That kind of statement makes me think that we cannot all be above average. The median household must in he long term (say 5 years) always be able to afford the median home and crime rates have dropped significantly in the last 25 years so it is almost by definition easier to afford to live in a safer neighborhood than 25 years ago. If all the women quit working in the taxed economy and instead worked producing for in home consumption the median household would still have to be able to afford median to afford the median home.

      Good schools are an illusion when moved, bad students do bad in “good schools” and good students do well in “bad schools”

      • This is an excellent statistical point Floccina, and I wholeheartedly agree with you concerning the schools.

        When people talk about ‘good schools’ the polite thing to do in conversation is to collectively pretend it’s about average test scores and sophisticated teaching methods and enlightened administrators, but what people actually care about is the student population peer group and keeping their kids away from bad apples. ‘Quality’ land often means ‘quality peers in the local public school’ (strongly correlated with local crime rates, naturally).

        There’s a diminishing marginal utility to quality peers – people are willing to pay to place their kids amongst the children of the elites, but they are willing to pay much more to keep their kids away from bad apples.

        I’d hypothesize that people are 85% satiated if there aren’t more than 10% of children below the white mean in cognitive ability and orderliness. Of course, no one can speak publicly, and increasingly even privately if one isn’t complete confident in the sympathy of one’s company, in those explicit terms.

        Rod Dreher, just yesterday, wrote, “The fact of post-1960s American life seems to be that nobody who can afford to move will live around poor people, because too many of them are violent, anti-social, and ruin the schools.”

        The question becomes one of whether there has been any secular trend in ‘land quality’ or ‘low bad apple propensity among urban public school peers’ availability / affordability over time. I guess that there has been.

        You say, “it is almost by definition easier to afford to live in a safer neighborhood than 25 years ago.” No – not necessarily – especially if the ratio between land prices and median wages have gone up proportionately to increased safety. NYC is safer than in 1990, but prices have increased much faster than median wages, especially in the best neighborhoods. Someone, somewhere, (probably in real estate) must have done this study, neh?

        For example, you mention crime. Yes, crime has indeed gone down dramatically in some areas in the last 25 years. But it also exploded starting in the late 50’s (6 fold in New York City) and despite enormous progress has not returned to it’s previous steady-state even with a vast and costly increase in incarceration and invasive policing methods.

        My surmise is that living in a safer NYC with better public schools (fewer bad apples) in a household with a single wage-earner was more ‘affordable’ (vs median wages) 60 years ago than now. Anecdotally, I am familiar with some older individuals who provided just such decent upper-working / middle-class lifestyles for their families in city centers on very meager single blue-collar salaries, something that would be utterly impossible today, and is a challenge even for dual-professional-class-income households today.

        It’s amazing how baby boomer intellectuals from various extremes of ideological axes nevertheless seem to agree on justified nostalgia for those aspects of their childhood New York.

        In addition, I’m curious how the real tax burden has shifted over time (and how that affects affordability). Where I grew up, in the last 30 years, sales tax and property tax rates have both doubled, but my impression is that ‘real local services impact per capita’ has actually declined. We spend vastly more for the schools in real terms, but we don’t seem to be doing any better for all the extra expenditure.

        Now consider how all this must seem to someone without time, inclination, or capability to digest all this. The natural heuristic they will follow will be to assume that there is strong correlation between price and quality in neighborhood and bid up desirable property to as much as they can afford which will cause enclave-clustering of both upper class and underclass.

        My bottom line in Economics terms is that prior to the 60’s and 70’s there used to be a tremendous amount of ‘Consumer Surplus’ in the ‘quality community’ value of middle-class urban neighborhoods and that, over time, it has almost all disappeared into desirable land prices. This has happened in dramatic disproportion relative to general CPI inflation, and means that the conclusion about the improvement of the condition of the ‘middle class’ in America in the main post here is not really accurate.

        Finally, I’d be remiss not to mention Elizabeth Warren’s “The Two Income Trap” here, which has a number of related insights.

    • Part of me believes Handle’s surmise. The rest suspects that the apparent inaccessibility of the American Dream is mostly because over the last 50 years or so Americans have ratcheted up their expectations while demanding less of themselves. How to know?

      Clearly, raw family income numbers are inadequate. The challenge is to disaggregate factors that make comparisons over 40 years difficult. Of particular interest are lifestyle choices such as age at marriage (or living-together arrangement), and number of market workers versus homemakers.

      Let me suggest an approach, which I lack the resources to take to its conclusion. Select from all American households of 1967 only those whose highest-earning member is, say, 35 – 40 years old and rank these households according to the earnings of that member. Now collect statistics about the characteristics of “typical families” (median households) at, say, the 25th, 50th, and 75th percentiles. Characteristics would include such things as number and ages of family members, numbers of market workers and of homemakers, hours and type of work for each, income after taxes and governmental benefits, major family budget items, square footage of dwelling, neighborhood crime rate, indices of school quality*, typical forms of socializing and other entertainment, and so on. Represent all dollar amounts in 2009 dollars.

      Now collect the same statistics for two sets of families in 2009. The first families are identified exactly the same way as in 1967. The second group of families is a subset of the first, restricted to those whose highest-earning member made lifestyle choices closest to those of his or her 1967 counterparts, most significantly age at marriage (or LTA) and number of market workers in the family.

      It seems to me that a report made from these results could go a long way toward confirming or refuting Handle’s surmise.

      Ken

      * What Floccina said about schools is true, but the indices would still be indicative, however unsurprising.

  2. PSST is a balancing act. Sustainable means a wage distribution with a large median, gets economies of scale. But a wage distribution with a small median gets you specialization. The economy balances the two by monitoring the risk of shortages, and shifting from an emphasis on scale in a contraction and an emphasis on diversity in an expansion.

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