The Shrinking American Middle Class

I have posted a lot recently about the plight of low-wage workers -- about how they have lost much of their buying power, and badly need the minimum wage to be raised. And I still believe that is important. The minimum wage needs to be raised to at least $10 an hour (and tied to the rate of inflation). But the low-wage workers are not the only Americans in increasing economic trouble.

The middle class is also in trouble, and has been shrinking for several years now. This is clearly illustrated by the above charts (from Mother Jones). The top chart shows the median wage (the wage at which half of the population will make more and half will make less). Note that it has dropped sharply in recent years, and continues to drop.

But the second chart, which shows the average wage of the five wage quintiles, is even scarier. Note that only the top 20% of income earners has a shown significant increase (and even in that quintile, only the top 5% have been able to stay above the rate of inflation). The bottom 80% of all Americans (and really the bottom 95%) have seen their buying power substantially diminished. Their income has been virtually flat, meaning in real terms it has dropped substantially.

That is because the rate of inflation has grown much faster than the rise in income. And just since 1978, the rate of inflation has grown by more than 258% while the growth in income has been minimal. That means the income of 80% to 95% of all Americans won't buy nearly as much as it would buy back in 1978. And if you can't buy as much with your income, then your income has dropped.

This is the reason many are dropping out of the middle class. While many no longer have jobs, even many of those that do have jobs can no longer afford to live a middle class life-style (which thanks to inflation, grows more expensive with each passing year).

Why have salaries not kept up with the rate of inflation? There are at least a couple of reasons. First, the rise in productivity is no longer being shared with workers. Owners and executives now keep almost all of it. Second is the large unemployment. Because millions are out of work, businesses no longer have to pay a premium price to get a good worker. They can replace a worker at an even lower salary, because there are so many out-of-work people that are desperate for a job at any wage. And as wage drop (and inflation increases), the middle class shrinks.

This does not have to be that way. We could raise the minimum wage (which would drive up wages for all Americans). And we could pump more money into the economy by putting it in the hands of those who would spend it (the poor). Both of these moves would increase demand and profits, which would increase job creation. This would put the economy on a curative path.

But it cannot be done while the Republicans hold veto power (as they do in the House). They must be voted out of power. That is the only way to fix the economy, create substantial growth of good jobs, and stop the shrinking of the middle class.