You Decide: What’s happening to the middle class?

Dr. Mike Walden

North Carolina Cooperative Extension

During the campaigns leading up to the recent elections, we heard a lot about the middle class. Many – if not most – candidates tailored their messages and promises to helping those in the middle class improve their lives.

Why was this? One answer comes from political science and is termed the “median voter strategy.” This strategy simply says that in an election – especially a general election rather than a primary – candidates should craft their messages to appeal to the average (median) voter. If most people don’t like “extreme” positions (too far at one of the political spectrum or the other), then the notion is a “down the middle” message will appeal to the largest number of voters.

A second answer is an offshoot of the first, but maybe more direct. In modern America, the middle class has been where the votes are. Traditionally, the majority of Americans have considered themselves to be middle-class – regardless of whether they actually were middle-class by statistical measures. Hence, a candidate who concentrates on middle-class issues and concerns will be going where the votes are.

The third answer is less politically oriented and more economically focused. It is that there are real problems in the middle class – problems that are relatively new and which threaten the very existence of the middle class as a large and viable entity. Therefore, politicians are giving so much attention to the middle class because it is in trouble.

In this column I will examine this third possibility. The first step is defining “middle class.” Obviously the term implies households in the “middle,” especially of the income distribution. But how broad is the middle, and where does it begin and end? There are many answers and measures. Here, I will define “middle class” as households earning between $35,000 and $75,000, which puts a spread around the average (median) household income of approximately $50,000.

Using this definition we can quickly see one issue: The middle class has been getting smaller. In North Carolina between 2007 and 2012, the percentage of households defined as middle-class (by the above definition) declined from more than one-third of all households to just above 30 percent.

The earnings of middle-class households have also been dropping in the last five years. After adjusting for inflation, middle-class households experienced a 7 percent fall in income. This was a decline twice as much as for those at the top of the income ladder, but it was smaller than the loss for those at the income ladder’s bottom rung.

Middle-class households are also stressed by some of the spending challenges they face. Many middle-class households naturally want their children to attend and graduate from college, because they know a college degree is one of the best tickets to a good standard of living. But it’s been well documented that college costs and college debt have both been rising rapidly (although it should be recognized that North Carolina’s public universities have some of the most affordable tuitions in the nation). Also, there is uncertainty about where health insurance premiums are headed.

Middle-class households face changes in the workplace, as well. Traditionally among the largest employers of middle-class workers were factory jobs. But for several decades, factory jobs have been replaced by machines and technology. Other middle-income positions – in sales, finance and even management – may be on the chopping block in the future. Economists actually have a term for the replacement of labor by machines and gadgets: “technological unemployment.” It likely will continue.

Plus, there’s maybe even a bigger reason to worry about the stability of the middle class. Historians tell us authoritarian rule was replaced by democracies when the middle class developed and expanded in countries. So if the middle class shrinks – leaving an upper class and lower class but not much in-between – there may be reason to worry about our political system.

So what’s the answer to strengthening the middle class? Many think the ultimate answer is education – making sure individuals have opportunities for training for middle-income jobs, and opportunities to be re-trained and re-educated for different jobs when necessary.

The middle class is at the heart of most successful modern economies and political systems. Saving, protecting and even expanding the middle class may be the issue of the century. You decide!

Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks.

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