Middle class declines in the majority of US metropolitan areas

A new study from Pew shows that the middle class did not do well in many metro areas between 2000 and 2014:

The report by Pew Research Center found that the share of the middle class fell in 203 of the 229 U.S. metropolitan areas examined from 2000 to 2014, including major cities such as New York, Los Angeles and Chicago, which saw a relatively sharp drop in its middle class.

For many areas, a big culprit in the declining middle was the falloff in manufacturing jobs during that 14-year period, when factories shed about 5 million workers from their payrolls nationally…

The news was not all downcast, especially for metro areas in coastal and border regions that have benefited from the boom in technology, trade and resources…

Among the 229 metro areas, which constitute about 76% of the U.S. population in 2014, there were slightly more areas that saw a bigger increase in the share of upper-income population than lower-income adults. Still, Pew’s Kochhar did not view that as a big win for the American economy. The median incomes of the lower, middle and upper tiers all shrank between 2000 and 2014, he said.

Three quick thoughts:

  1. The continued effect of losing manufacturing jobs cannot be overstated: this has hurt numerous cities for decades. It is not easy for any large city to transition from such jobs to opportunities in new sectors.
  2. Looking at this data at the level of a metropolitan region is helpful because it hints at broad patterns within regions that are often segregated by social class and race. The phenomenon of the rich and poor living right next to each other as well as trendy and wealthy communities getting a lot of attention is not exclusive to cities; similar patterns can be found in suburban areas.
  3. Connected to the second point is that solutions to income issues could come at the level of the entire region rather than within individual communities. How might entire regions help the middle class? Why don’t more large cities and surrounding suburbs work together on these issues? (I know why they don’t but that doesn’t mean that it wouldn’t benefit many local residents.)

Middle-class Americans pay a higher proportion of expenses for transportation

Driving and a suburban lifestyle comes with a price: recent data suggests the middle-class pays more for transportation that wealthier and poorer Americans.

In this case, the numbers show that middle-class Americans spend a much higher share of their total household annual expenditures on getting around, compared with the poorest and richest groups. Instead of gentle downward slopes, the transportation shares are closer to a bell curve (with the sixth decile added in for emphasis):

CityLab

The same surprising distribution holds true when we drill down into a subset of transportation costs. The middle-class pays an outsized share on gas, vehicle maintenance, car insurance, and “other” related expenses—with the fifth decile above the medians (4.9, 1.6, 2, and 5.1 percent, respectively) in every case…

The data don’t say why transportation is taking a disproportionate toll on middle-class wallets, but it’s not hard to target a confluence of factors: sprawling development, city housing affordability, poor transit investment, and the result of them all, car-reliance.

I wonder if this then means that driving is an aspirational activity: it offers independence and access to private suburban property but it can be quite costly. If you don’t have a certain level of income, such a lifestyle may not make much sense. But, after a certain point, one can aspire to join the wealthier people who can better afford it (and probably have nicer cars and bigger houses).

Can sociologists be the ones who officially define the middle class?

Defining the middle class is a tricky business with lots of potential implications, as one sociologist notes:

“Middle class” has become a meaningless political term covering everyone who is not on food stamps and does not enjoy big capital gains. Like a sociological magician, I can make the middle class grow, shrink or disappear just by the way I choose to define it.

What is clear and incontestable is the growing inequality in this country over the last three decades. In a 180-degree reversal of the pattern in the decades after World War II, the gains of economic growth flow largely to the people at the top.

I like the idea of a sociological magician but this is an important issue: many Americans may claim to be middle class but their life chances, experiences, and tastes can be quite different. Just look at the recent response to possible changes to the 529 college savings programs. A vast group may help political parties make broad appeals yet it doesn’t help in forming policies. (Just to note: those same political parties make bland and broad appeals even as they work harder than ever to microtarget specific groups for donations and votes.)

Given some recent conversations about the relative lack of influence of sociologists, perhaps this is an important area where they can contribute. Class goes much further than income; you would want to think about income, wealth, educational attainment, the neighborhood in which one lives, cultural tastes and consumption patterns, and more. The categories should clearly differentiate groups while remaining flexible enough to account for combinations of factors as well as changes in American society.

USA Today says American Dream costs $130k per year

Living the American Dream isn’t cheap, according to calculations from USA Today. Here is what went into the cost:

•Home ownership is central to the American dream. So, we took the median price of a new home ($275,000), subtracted a 10% down payment, then projected the annual cost of a 30-year mortgage at 4% interest. We also added annual maintenance costs of 1% of the purchase price. Total: $17,062 a year.

•We used the U.S. Department of Agriculture’s April 2014 figure of $12,659 for a moderate-cost grocery plan for a family of four.

•In May, AAA estimated it would cost $11,039 a year to own one four-wheel-drive sport-utility vehicle.

•The Milliman Medical Index pegged annual health insurance premiums and out-of-pocket medical expenses at $9,144.

•We used various estimates for the costs of restaurants and entertainment; one family summer vacation; clothing; utilities; cable or satellite; Internet and cellphone; and miscellaneous expenses (see table).

•Total federal, state, and local taxes were pegged at 30% for households at this income level, based on a model developed for Citizens for Tax Justice.

•USA TODAY calculated current educational expenses for two children at $4,000 a year and college savings (all of it pretax, we assumed) at $2,500 per year per child, based on various rules of thumb.

•Finally, the maximum annual pretax contribution to a retirement plan for people under 50 is $17,500. That’s slightly less than 15% of this American dream household’s annual earnings, in line with financial planners’ recommendations.

Total: $130,357.

It sounds like a lot — and it is in a country where the median household income is about $51,000. Add one more child and another vehicle and you could easily reach $150,000.

I can see some places where costs could be trimmed, particularly with the car and a more minimalistic approach to retirement savings. I wonder if the emphasis here should be on the overall cost – which is high and the article notes it can vary quite a bit from region to region – or the assumptions about what the middle class is about. I was recently looking at a classic sociological study Working-Class Suburb written by Bennett Berger in 1960. There is a point in the book where Berger juxtaposes the suburban critic frowning at the ills of suburban life and the suburbanite who is happy with his relative comfort of a car, refrigerator, house, and little patch of lawn. In the decades since, expectations about the good life have increased, as Juliet Schor showed in The Overspent American. If Americans need $130,000 a year to have the basics, many of which are good things, then is being middle-class something completely different today?

Canada’s rising middle class the result of a housing bubble?

In eclipsing the American middle-class as the world’s richest, is the increasing wealth of the Canadian middle-class largely due to a housing bubble?

One word that doesn’t appear in the article, however, is housing. The U.S. is emerging from a catastrophic collapse of the housing market that obliterated household wealth for millions of middle-class families. Canada, however, is in the midst of a delirious housing boom and a personal debt craze that reminds some economists of the U.S. market exactly a decade ago (before you-know-what happened)…

One year ago, Matt O’Brien calculated that Canada’s price-to-rent ratio was the highest among advanced economies, making it the “biggest housing bubble” in the world. Canada’s historic housing boom (and our historic bust) comes at the precise moment in history that they pass us to grab the title of World’s Richest Middle Class. Just a coincidence?

Maybe. As the LIS data in the Upshot article shows, Canada’s median earner has been gaining on America for decades, powered by a strong service economy, supported by a disproportionately large energy industry. Remarkably, U.S. GDP-per-capita has been more than 15 percent richer than Canada’s for the last 25 years (see graph below), even as the median American worker has fallen behind the median Canadian earner. That’s a pretty clear indictment of U.S. income inequality…

Still, as many economists like Atif Mian and Amir Sufi have have argued, strong housing markets support middle-class income growth just as housing busts wreck middle-class income growth. The effect can be direct (more houses means more construction jobs*) and indirect (when families feel richer from rising housing prices, they spend more across lots of industries, raising incomes). As Reihan Salam writes, “the central driver of the decline in employment levels between 2007 and 2009  was the drop in demand caused by shocks to household balance sheets.”

Housing is an important factor in a middle-class lifestyle from being able to own a house (more important in certain places like the United States as a sign that “we’ve made it” as well as providing for one’s family) to affording a good neighborhood (which is often associated with lots of other good outcomes like better schools, less crime, more local resources) to paying relatively less for housing than those with lower incomes.

All that said, there is no guarantee that housing will be a significantly positive financial investment in the long run. And what happens in Canada if such a housing bubble does burst?

Dunphy’s home from Modern Family isn’t exactly a middle-class home

The home used as the Phil and Claire Dunphy household on Modern Family is up for sale:

[G]et ready for a blast of memories from “Modern Family,” the Golden Globe & Emmy-winning ABC prime-time comedy that was filmed at 10336 Dunleer Dr., Los Angeles, CA 90064.

The price is $2.35 million, but listing agent Mitch Hagerman of Coldwell Banker Previews International said there’s decent income potential given the fact that TV producers have forked over generous fees for the right to film exterior shots of the property. He said it would be up to the new owners to negotiate with ABC Studios…

The home is a traditional, two-story style and has been impeccably remodeled, complete with crown molding, wood floors and upgraded appliances. It sits on a prime street in the coveted Cheviot Hills neighborhood. Hagerman says the home should sell pretty easily on its own merits.

“It’s a charming, gorgeous, cozy, family-oriented and classic-style home in a fantastic neighborhood where there’s very little inventory,” he said.

The home offers 4 bedrooms with en suite bathrooms, plus a powder room. The home last sold for $1.97 million in 2006.

A nice and expensive home. This is interesting because the Dunphy family is portrayed as being fairly middle-class. Phil is a realtor who is not the most successful or smart (these are running points throughout the shows). Claire recently returned to work, working for her father’s closet business, after not working. Where do they get all of their money? How do they afford such a nice house?

Sociologist Juliet Schor argued in The Overspent American that one problem of post-World War II television is that it showed an increasingly lavish middle-class lifestyle. The evolving image of the middle-class on television showed families with more money and possessions and not much discussion about how they could afford it all. The Dunphys are supposed to look like normal Americans yet their lifestyle is pretty wealthy with little concern about money and pretty nice possessions. Schor suggests portrayals like this pushed more Americans to consume more.

In other words, the show plays off the idea the extended family depicted is a “typical” American family yet its class status is far from what many American families experience.

Sprawling American cities have less inequality

A new report from the Brookings Institution suggests sprawling American cities have less inequality:

In a new report, All Cities Are Not Created Unequal, Berube compared levels of inequality in fifty large American cities. He found the gap between rich and poor is rising in large cities on the East and West Coasts, while cities in the South and West like Las Vegas, Mesa, and Fort Worth, are more equal, and retain more of what the middle class needs…

“They built a lot more housing over time that has managed to maintain a middle class, and they don’t have sectors of the economy, like finance and technology, that tend to be driving incomes at the upper end of the distribution,” Berube said. “They’ve got sectors like transportation, warehousing, and retail.”

Those are industries, Berube says, where you’re unlikely to strike it very rich, but where a middle-class income is still within reach.

This sounds very much like David Rusk’s argument in Cities Without Suburbs. He suggests what differentiates cities is their elasticity, a measure of how much land they have annexed during their history. Newer cities, particularly in the South and West, have been able to annex more land. This then gives them more residents who might otherwise move to the suburbs, boosting the city’s tax base and mix of residents.

Read the full Brookings report here.

Describing the 20% of temporary rich (“mass affluent”) Americans

New survey data looks at new rich Americans who draw a lot of attention from companies and who might have outsized political influence:

Fully 20 percent of U.S. adults become rich for parts of their lives, wielding outsize influence on America’s economy and politics. This little-known group may pose the biggest barrier to reducing the nation’s income inequality…

Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners…

Companies increasingly are marketing to this rising demographic, fueling a surge of “mass luxury” products and services from premium Starbucks coffee and organic groceries to concierge medicine and VIP lanes at airports. Political parties are taking a renewed look at the up-for-grabs group, once solidly Republican…

In a country where poverty is at a record high, today’s new rich are notable for their sense of economic fragility. They’ve reached the top 2 percent, only to fall below it, in many cases. That makes them much more fiscally conservative than other Americans, polling suggests, and less likely to support public programs, such as food stamps or early public education, to help the disadvantaged…

As the fastest-growing group based on take-home pay, the new rich tend to enjoy better schools, employment and gated communities, making it easier to pass on their privilege to their children…

Sometimes referred to by marketers as the “mass affluent,” the new rich make up roughly 25 million U.S. households and account for nearly 40 percent of total U.S. consumer spending.

This sounds like a group that would call themselves upper middle-class: wealthy enough to enjoy some luxuries and good things for their kids but not wealthy enough to truly compete with the millionaires and CEOs. They resent the idea that they are rich as they think middle-class values, such as hard work and providing for their kids, helped them arrive at their current position.

Yet, when the median household income in the United States is around $50,000 it is hard not see this group as wealthy. To some degree, it is all relative: the mass affluent might not be able to consistently live the high life in Manhattan or San Francisco but they could do really well in cheaper places like the Midwest or Atlanta or Dallas. Perhaps it is the perceived fragility that matters most: losing their job might be enough to move them down back near the median income, though unemployment rates are much lower for the educated and well-trained.

A few questions after reading this article:

1. How big should this group be in the United States?

2. Long-term, which party will capture these voters?

3. Will this group get a lot of negative attention as they are more accessible than the ultra-wealthy who can live more cloistered lives?