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A recent release from the Census Department reports that, six years into the economic recovery, the middle class has finally seen household earnings increase. Though the reports are generally viewed to show that the middle class is burgeoning, there are those who believe this to be a false positive. Let’s examine the data and what it truly means for the middle class.
Benefiting the Middle Class
The term “middle-class” is used extensively in the media, but the exact parameters of who that applies to may be unclear for some. So first, let’s try to define what makes a family “middle-class.” First and foremost, because different areas have varying standards of living, there are no exact numbers for determining “middle-class” finances. According to Pew Research Center, a family of four must earn $46,960 to $140,900 annually to be considered “middle-class” in the United States. Alternatively, in terms of net worth, $0 to $401,000 is considered “middle-class,” according to NYU Professor Edward Wolff.
Middle-class earnings per household rose by 5.2 percent (inflation-adjusted) from 2014 to 2015. This figure includes increases for families of all ethnic backgrounds and for all major age groups. Last year marked the largest single-year household earnings increase for the middle class in nearly 50 years and is the first annual increase for middle-class families since 2007. Average household income for a middle-class family is now
Between 2014 and 2015, the amount of full-time, year-round workers increased by 2.4 million. This is the highest number of total, full-time working adults since the recession began. Together, the information regarding growing wages and increasing employment paints a positive picture of the current state of the middle class’s working situation.
In addition to increased earnings and higher employment rates, poverty levels and the number of Americans without health insurance also sharply declined between 2014 and 2015. The official poverty rate dropped by the largest amount in a single year since 1999, from 46.6 million to 43.1 million. Similarly, those without insurance declined from 33 million to just 29 million.
Though tentatively interpreted as the middle class recovering from the recession, there may be need for cautious optimism when considering these statistics. It is important to note that the numbers that are consistently being cited by the media are based on “household” earnings, not individual earnings. Individual earnings are increasing at a much lower rate, at just 1.5 percent for men and 2.7 percent for women.
While the nominal value for household income is the highest it has been in nearly 20 years, purchasing power for the middle class’s median income is lower than its peak in 1999. Even given the recent earnings increase, the middle class is still earning less than it was in 1999 when considering inflation.
Though the increase in earnings was significant in relation to 2014 numbers, this is the first time that such an increase has happened since the recession. Therefore, some analysts suggest that 2015 should be considered an outlier and not necessarily indicative of an improving middle class.
While the recent data regarding middle class earnings is generally positive, it is important to take the report with a grain of salt. Though household incomes are on the rise, purchasing power in the middle class has yet to regain the high point set back in 1999. Similarly, while poverty levels are the lowest that they have been since the recession, they are still higher than before the recession began. Whether the increase of earnings will continue to rise remains to be seen, but for now, the recent bump is some of the best news the middle class has gotten in the past decade.
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This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2015 Advicent Solutions. All rights reserved.