Rethinking the conventional wisdom of Middle Class income

Terry Fitzgerald, a senior economist with The Federal Reserve Bank of Minneapolis, posted in September an interesting piece on the growth of middle class income. Yes, that’s right, the growth of middle class income.

Fitzgerald makes the following observations:
“The economic progress of middle-income households over the past generation is difficult to assess. Many recent reports portray stagnation—household incomes increased little, wages increased even less and rising expenses drove families into debt. In contrast, another set of reports describe large gains—income per person almost doubled, people are healthier and living longer, and the quality, quantity and variety of goods and services being consumed are greater than ever. It seems that life for middle America is stagnating at the same time it’s getting much better.”

“The issue addressed here is whether income growth over the past three decades bypassed middle America and accrued almost entirely to the rich. I find that—contrary to many reports—middle America did quite well.”

“The main finding is that—after adjusting the Census Bureau data for three key factors—inflation-adjusted median household income for most household types increased by roughly 44 percent to 62 percent from 1976 to 2006. … Middle American households had substantial income gains.”

“Why does the debate about middle America matter? Because an accurate assessment of the economic progress of middle America is a crucial input in formulating good public policy. … Furthermore, if it is understood that middle America has indeed experienced substantial gains, policy priorities may change. For example, more emphasis might be placed on policies that promote continued economic growth or that target deeply rooted poverty rather than middle class stagnation.”

For Fitzgerald’s full report, visit http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4049