The Material Well-Being of the Poor and the Middle Class since 1980

From NCPA

The U.S. economy has grown considerably over the past three decades, yet there is a prevailing sentiment that the middle class and the poor have been left behind. Much of this sentiment stems from official measures, such as median household income, which paint a bleak picture of the well-being of these two groups. However, this dominant thought regarding socioeconomic class gaps is flawed in several ways, among them that people and policymakers alike tend to pour over the wrong metrics to make these kinds of judgments. When these figures are adjusted, it becomes clear that the poor and middle classes are far better off than popular sentiment would have us believe, say Bruce D. Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame.

• First, a more comprehensive measure to include non-standard forms of income is necessary to encapsulate gains that the poor and middle classes have made in recent years.
• Second, the metric for inflation that is commonly used in these calculations inherently understates the material wealth of the non-rich.
• Finally, income cannot be the only figure that is scrutinized when assessing how well-off a given person is -- solid examination should include average consumption, as this is often a superior measure of economic prosperity over time.

Upon including these amendments to otherwise-standard measures, results are obtained that create a thoroughly more optimistic image of middle class wealth.

• Median post-tax income has increased, as has consumption.
• A factor that is often ignored, physical amenities have improved in quality and increased in quantity amongst the middle class as well.
• This includes larger homes, greater usage of air conditioning and personal clothing dryers, and more valuable automobiles.

These same results also hold true for the poor (in this case measured to be the lowest 10 percent in income). Median income and average consumption have increased amongst the poor, and their access to physical assets such as those described above has also improved. This has culminated in a decrease in the poverty rate, though official statistics would suggest otherwise.

Source: Bruce D. Meyer and James X. Sullivan, "The Material Well-Being of the Poor and the Middle Class since 1980," American Enterprise Institute, October 25, 2011.