A Bad Decade for Household Income and the Shrinking Middle Class

Not sure if the headline reflects my main argument, but here is my column from the March 21st Coloradoan.

Perhaps US should look at life’s satisfaction

In a recent column, I wrote about how some nations are looking at alternative measures to gross domestic product to assess their citizens’ well-being.

Great Britain’s prime minister, for example, has appealed to the old adage – and some new research – that money doesn’t buy happiness. Now he is asking residents a series of questions about their life’s satisfaction to better track progress.

Recent U.S. data suggest we might want to start doing the same thing on this side of the pond.

Why? To make ourselves look better.

Because if we consider household income growth as our measure of progress, we see most of the 13 original colonies and their 37 younger siblings have suffered through a pretty miserable decade.

The Census Bureau put U.S. median household income at $49,777 in 2009. When adjusted for inflation, this is almost 5 percent lower than it was at the start of the millennium. By comparison, U.S. median household income increased by 10 percent from 1990-2000.

While millions of families are making do with less, the economy overall continues to grow, although in fits and starts. National GDP per person stood near $42,000 in 2009, up 5.5 percent from the millennium’s start.

It might seem puzzling that median household income is declining while average GDP is increasing, but the explanation is straightforward. Low- and medium-income households are getting increasingly smaller slices of a growing pie.

In 1990, 29 percent of income went to the lowest 60 percent of households. In 2009, this group’s share stood at 26 percent.

While the growing income disparity in the U.S. mostly arises from the ballooning incomes at the top – 22 percent of income goes to 5 percent of households – declining job opportunities are the largest impediment in the pathway to a middle-class income.

Indeed, the U.S. labor market is deep in the throes of a “hollowing out” phase. During the past 20 years, there has been strong growth in the highest- and lowest-paying jobs but significant losses in middle-income jobs.

Some of the culprits, such as new technology and out-sourcing, are well-known. ATMs and online banking, for example, have radically changed the mix of the banking industry work force. Computer chips once made in Colorado are now produced overseas.

These trends reduce the number of decent-paying jobs that don’t require a college degree. And when job seekers outnumber job openings, wages and incomes fall.

Yet there is another implication of this job scarcity that is less well-understood but might be more worrisome.

In particular, there is an emerging undercurrent of resentment, where the middle class works feverishly against itself.

For example, government workers in Wisconsin, Ohio and elsewhere are publicly vilified for no other real reason than having a pretty good job.

Although politicians might be catching on to the idea that money can’t buy happiness, it is important that they also recognize that aggressively attacking the incomes of the shrinking middle class is certainly no way to improve well-being.

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