What Is the Middle Class and Why Is It Shrinking?

Throughout history, America has been seen as a shining beacon of hope, freedom, and prosperity. America was founded under the assumption that everyone should be free and able to pursue their own happiness. It seems like such a basic and God-given right to Americans, but much of the world doesn’t get to enjoy that freedom …

Throughout history, America has been seen as a shining beacon of hope, freedom, and prosperity. America was founded under the assumption that everyone should be free and able to pursue their own happiness. It seems like such a basic and God-given right to Americans, but much of the world doesn’t get to enjoy that freedom the way Americans do. 

Over the last few centuries, millions of people have left their home countries, risked everything, and even sacrificed their lives, just for the chance to come to America – the land of opportunity.

The original principle of the United States of America was simple: here’s a bunch of land and seemingly endless resources, now go make of it what you will and keep what you make for yourself. Sure, you’ll have to pay taxes, but at the end of the day your success is your success and no one can take that from you. 

Needless to say, no matter where a person comes from, that’s a beautiful concept, and it’s one that has long been coined as “the American dream”. But now, after hundreds of years of prosperity, there’s a sentiment floating around today that says the American dream is dead. In fact, this sentiment says it’s not only dead, but it’s also killing the American people who cling to it so dearly.

The reasoning behind this line of thinking goes something like this: 

Over the years, as more people came to America with hopes of working to achieve success, naturally competition increased, markets became crowded, and as a result a small group of people found their way to the top of the economic food chain. Now, as that small group of “success-holders” continue to compete against one another for more power and more success, they have made it increasingly difficult for newcomers – and those without prestige or privilege – to share this success and make a life for themselves and their families.

To simplify this mentality, these people might say the “game” of capitalism is no longer fair in America. Hard work no longer equals success, but instead power and prestige lies in the hands of the few and the privileged.

While part of this sentiment may ring true for some Americans, the pessimistic outlook it evokes is unnecessarily defeatist. Yes, the American dream as we’ve known it for centuries is indeed changing. The middle class is shrinking due to the fact that manual labor jobs are being outsourced to other countries, technology and artificial intelligence is dramatically changing the modern workplace, and compensation for middle class workers has steadily declined. But we can find hope in the fact that the American middle class can and will make a comeback if Americans will embrace the many new technical job opportunities available to them and if policy-makers will incentivize American businesses to hire American workers and pay them well.

But let’s back up for a moment. Let’s look at why the middle class is so important and how we got to where we are in the first place.

The importance of the American middle class

It has often been said that the middle class is the backbone of the American economy. But what exactly is the middle class, and why is it so important?

Although the term “middle class” is a bit obscure due to the multiple factors that must be considered (such as location and family size), Pew Research sheds a bit of light on what classifies a household as “middle income” in America. 

According to Pew, the middle class ranges from a household income of about $48,500 to $145,500 annually as of 2018. That’s quite a broad range, which is probably why about half of all Americans fell in this category as of 2018.

The problem is, the middle class made up 61% of the U.S. adult population in 1971 and it makes up 52% now. That’s a 9% drop. Here’s how significant that is:

The US population today is just over 300 million people, so the middle class today is about 156 million people (52%). If the middle class had not shrunk since 1971, then there would be an additional 27 million Americans in the middle class.

As of 2018, 29% of American adults were in the lowest-income tier, up from 25% in 1971. On the opposite side, 19% are in the highest-income tier, up from 14% in 1971.

That means if the lower and upper classes remained the same percentage of the US population that they were in 1971, there would be 12 million less people in the lower class today and 15 million less people in the upper class  – and those 27 million people combined would be back in the middle class.

On the other hand, while the middle class is shrinking, it seems as if the upper class is actually growing at a slightly more rapid rate than the lower class. But if people are making more money now, which is leading to more people leaving the middle class for the upper class, then what’s the problem?

And while to some Americans it may seem like a good thing to have more people making more money, it’s bad for the American economy to lose strength in its middle class. 

According to the Center for American Progress, a strong middle class balances out the American economy by keeping the demand for goods and services high and increasing entrepreneurship, as well as driving more efficient government and public investments, increasing involvement in matters of public policy, and increasing investment in public education.

To sum up the importance of the middle class, one might say it’s better for more people to have enough money to thrive than for fewer people to live in abundance.

All of this is to reiterate the problem at hand in America, which is that the middle class has shrunk as Americans split to the lower and upper income tiers. But why is this happening and what can we do to correct it?

Reasons the middle class is shrinking and the American dream “fading”

1. Outsourcing

Perhaps one of the most widely known detractors of middle class jobs in America is the outsourcing of middle-class (often manual labor) jobs both internationally and domestically. In an effort to save money and ultimately drive profits, U.S. companies have started looking to cheaper sources of labor in order to fulfill their operational needs. 

Globalization – the process by which businesses begin operating internationally, largely due to technological advances – has made it easier than ever for American companies to hire workers overseas for a fraction of the cost of an American worker. According to The Balance, “In 2019, U.S. overseas affiliates employed 14.6 million workers.” The typical industries impacted the most are technology, call centers, human resources, and manufacturing.

And American middle class workers aren’t only losing jobs overseas, they’re also losing them to domestic outsourcing as well. The Los Angeles Times reports an interesting example of this domestic outsourcing:

“In 2005, there were 138,210 workers nationwide who repaired ATMs, computers and other office machines, earning a mean annual salary of $37,640. Ten years later, the number of such jobs had shrunk to 106,100, with most of them subcontracted at annual pay of $38,990. But after accounting for inflation, that’s a drop of about 15% from 2005. By contrast, real wages for all occupations rose 1.3% between 2005 and 2015 – itself a tiny gain over the last decade, but still significantly more than those hit by domestic outsourcing.”

As more companies look to save money by outsourcing their work, more workers are forced to move into contractor roles, which leads to lower overall compensation for existing employees who try to compete with outsourced labor.

2. Technology and Artificial Intelligence

One of the more publicized reasons for the shrinking middle class is the growth of technology. As technology has evolved, it has begun handling more and more manual labor and tedious service work that would have otherwise been performed by a human being (typically receiving middle class wages). 

In the book In Conflict and Order: Understanding Society, authors D. Stanley Eitzen, Maxine Baca Zinn, and Kelly Eitzen Smith say, “Robots, since the 1960s have replaced humans doing routine work such as picking fruit, welding, assembling, painting, and scanning products for defects.”

Not only are computers and robots handling middle class work, but workers themselves are beginning to utilize technology to work in more non-traditional or contractor roles outside of actual employment.

The authors say, “The Internet is revolutionizing the way business is transacted. More than 30 million American workers work in temporary, contracted, self-employed, leased, part-time, and other “nonstandard” arrangements.”

Between technology replacing jobs and employees using technology to leave their jobs for more appealing internet-based careers, middle class employment has taken a major hit and will continue to decline so long as middle class workers aren’t properly utilizing and learning how to interact with technology in a useful and profitable manner.

3. Lower compensation for workers

Another factor that has contributed to the decline in the American middle class is the decline in pay for middle class workers. As the authors of In Conflict and Order” state, “The income of a man in his 30s is now 12 percent below that of a man his age three decades ago.”

One reason workers are receiving lower compensation in America is companies are now forced to compete on a global scale with countries who pay their workers lower wages. Whereas before technology made international commerce easier, U.S. companies primarily competed with one another within the same economical “boundaries.” They could maintain a certain standard of living for their employees and still manage to remain competitive, because their competitors were being held to the same standard. Now, however, companies are competing with low-wage countries who can afford to slash costs to levels that force American companies to either outsource or pay their workers less.

Another reason for lower wages is the decline of union memberships. According to the In Conflict and Order authors, “Union membership has declined significantly, and union members make approximately 30 percent more than their nonunion peers.” This has led to the decline in wages of many in the South and Western regions of the United States. The bottom line is although unions sometimes get a bad reputation, scholars have agreed that they were actually doing a lot of good for the middle class as a whole.

How to go forward and strengthen the middle class for income equality

So the question remains: Where does the American middle class go from here? With middle class jobs being outsourced overseas, replaced by technology, and compensated at a lower rate, where does that leave the majority of Americans? Well, at the moment, their splitting ways – some to the lower class, and more to the upper class. But one path back to more pay equality in America could be described in three parts.

1. Find jobs that are in-demand and train Americans to do them

First, middle class workers can find jobs in the “new” economy by looking where the needs are. Indeed.com says these are the fastest growing industries for employment:

  1. Information technology
  2. Construction
  3. Drink manufacturing
  4. Personal services
  5. Direct retail
  6. Finishing contracting
  7. Real estate
  8. Trucking
  9. Architectural engineering
  10. Healthcare
  11. Financial services
  12. Transportation

If you notice, the jobs that are on this list are jobs that involve either managing technology or working with people in high-demand fields such as healthcare and real estate. Those things – managing technology and working with people – are two things that can’t be fully outsourced.

In order for Americans to strengthen the middle class, they’ll need to find these in-demand fields and get the appropriate training for them, much like they did when the Industrial Revolution introduced a new way to work that ultimately led to decades of middle class prosperity. When times change, workers must adapt.

2. Incentivize American companies to keep jobs in America

Another step to strengthening the American middle class is to incentivize companies to keep jobs in America. An outsourcing survey from Deloitte reports that 59% of companies see outsourcing as a cost cutting tool. In order to balance the scales for businesses, policymakers must find a way to incentivize companies to pay Americans for their work. Tax breaks have been used in the past on a smaller scale to incentivize companies to do various things, so making this a priority should help bring back some of the valuable jobs lost to cheaper overseas competition.

3. Incentivize American companies to pay well

Another key to strengthening the middle class in America is to not only incentivize American companies to hire American employees, but to also incentivize them to pay their American employees well. Along the same lines as the previous point, policymakers can find a way to keep American companies profitable while still enabling them to pay Americans for their hard work.

The sum it up

To state that the American dream is dead would be a drastic over-dramatization. Instead, the American dream is evolving.

Just like everything else in life, things change within a country and its economy. The manual labor jobs that helped build the thriving middle class of the past are no longer as viable an option for those looking to build a quality life in America. That’s not to say those jobs are worthless, but it is to say that the future doesn’t necessarily lie with them at the moment. Instead, Americans should look to train for more technical positions that are in demand while policymakers look to incentivize American companies to hire American workers and pay them well.

Sources:

Eitzen, D. Stanley, & Zinn, Maxine Baca, & Smith, Kelly Eitzen (2013). In Conflict and Order: Understanding Society (13th ed.). Pearson Education, Inc.

The American Middle Class Is Losing Ground – Pew Social Trends. Retrieved from http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/

TECHNOLOGY AT WORK v2.0 – Oxford Martin School – University of …. Retrieved from http://www.oxfordmartin.ox.ac.uk/downloads/reports/Citi_GPS_Technology_Work_2.pdf

Deloitte’s 2016 Global Outsourcing Survey -. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/operations/deloitte-nl-s&o-global-outsourcing-survey.pdf

Posted by Mike P. Taylor

Mike Taylor is a proud husband, father of 4, and author from Nashville, TN who communicates God's love in a way that makes sense.