Half full or half empty?
The rate continues its decade-long fall
from the sound bites blanketing the airwaves, it’s clear that politicians everywhere are concerned about the impact of the recession and slow recovery on the middle class. Elected leaders intuitively feel the public angst. But are things truly getting worse for middle-class families? Or are voters mostly reacting to the constant barrage of dispiriting media reports driven by the stubbornly high unemployment rate? MassINC’s annual Middle-Class Index offers a barometer to help answer these questions.
Our index looks at pillars of the American Dream: financial security and a comfortable retirement; access to health care; homeownership; and quality education. It also takes into account how hard residents must work to achieve these core promises, and it captures changes in equality of opportunity over time.
The index, which was pegged to 100 for the year 2000, has steadily fallen over the last decade. For 2012, our index measures 96.2, a 1.8 point decrease from last year. If you digest the movement in all of our measures presented in the table to the right, what you conclude about the state of the Massachusetts middle class in this tepid recovery is likely to depend on whether you generally see the glass as half full or half empty.
Clinging to the ropes: This view is a familiar story. Relative to a decade ago, housing costs are nearly 20 percent higher as a percentage of household income for middle-class families and health care premiums have more than doubled as a bite of family income. Young workers with a four-year college degree are earning less and graduating with nearly twice as much student debt, after taking inflation into account. The job market has improved but, short on cash, many residents are taking advantage of the fact that employers are hiring to secure a second job. The share of middle-income households working multiple jobs is approaching 7 percent, the highest proportion recorded in the data, which go back to the mid-1990s. Perhaps most concerning, the share of middle-class residents without earnings from investments has risen to more than 75 percent, and well over a third of them have no interest-bearing savings.
The Middle-Class Prize Fighter: The alternative narrative focuses on the steps middle-class families are taking to hang on to the American Dream in this challenging economic climate. Despite the rising cost, more residents are going on to college and they are completing four-year degrees at higher rates (69 percent in 2011 vs. 63 percent in 2000). Retooling for jobs in the new economy seems to be paying off. Unemployment rates are falling. If you look at incomes among workers and families with four-year degrees, earnings are rising for both families with children and families led by retirees. Even for residents under age 35 with a four-year degree, a group hit particularly hard in the recession, the median income is only off by 4 percent from the dotcom peak. More middle-class residents are buying homes as the housing market recovers. And nonwhite residents continue to make steady gains on measures of household income and homeownership.
Those arguing that the middle class is on the mat can strengthen their argument with our figures for the nation. Income for college-educated workers nationally is stagnant. Homeownership among middle-income households nationally is steadily declining. The number of middle-income households without interest or investment income has risen sharply. Retirement plan participation among middle-class households has fallen significantly nationally and the share of US workers in labor unions has declined by about 12 percent since 2000.
So where would we come down if we were judging this bout? The Middle-Class Index clearly shows signs of improvement for Massachusetts. But weak performance nationally is alarming and clearly will drag down the fortunes of Bay State residents absent a fundamental shift. Until we see signs of this change, we have real fear for the wellbeing of our middle class.
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Since these measures come in different units, we look at the movement of each in percentage terms since the beginning of the last decade and combine the scores using a weighted-average that gives more power to indicators that are fairly stable over time. Many of our indicators look just at residents in the state’s middle class, which we define as falling in the middle-three income quintiles. For families, this range spans from about $32,000 to a little more than $141,000 in total income annually from all sources. We made a slight change to improve our 2012 index by replacing two median income measures sensitive to demographic change with three income measures that better isolate earnings growth among roughly comparable households. For more on our index, visit www.massinc.org.