Middle-class squeeze

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The middle-class squeeze is the situation where increases in wages fail to keep up with inflation for middle-income earners, while at the same time, the phenomenon fails to have a similar impact on the top wage earners. Persons belonging to the middle class find that inflation in consumer goods and the housing market prevent them from maintaining a middle-class lifestyle, making downward mobility a threat to counteract aspirations of upward mobility. In the United States for example, middle-class income is declining while many staple products are increasing in price, such as energy, education, housing, and insurance.[1]

Charles Weston[2] summarizes the middle-class squeeze in this way: "Being middle class used to mean having a reliable job with fair pay; access to health care; a safe and stable home; the opportunity to provide a good education for one’s children, including a college education; time off work for vacations and major life events; and the security of looking forward to a dignified retirement. But today this standard of living is increasingly precarious. The existing middle class is squeezed and many of those striving to attain the middle-class standard find it persistently out of reach." [3] This squeeze is also characterised by the fact that, since the early 1980s, when European integration got into full swing, Belgium, France, Germany, Italy and the United Kingdom have experienced strong real wage growth, while real wage growth in the United States has remained sluggish for the most part.[4] From 1979 to 1995, hourly wages declined among men in almost every occupational category apart from the highest paid white-collar professions.[5]

As noted by the British historian and journalist Godfrey Hodgson,

"On the basis of such evidence I myself have written that “by all statistical measures . . . the United States, in terms of income and wealth, is the most unequal country in the world. While the average income in the United States is still almost the highest in the world . . . the gap between wealth and poverty is higher than anywhere else, and is growing steadily greater”."[6]

As noted by another historian,

“Not long ago, unskilled US workers enjoyed what might have been called an “American premium.” They were paid more than labourers with the same skills in other parts of the world simply because, as unskilled Americans, they would work with higher capital-to-labor ratios, better raw materials, and larger numbers of highly skilled fellow workers than their foreign counterparts. As a result, America’s unskilled workers were relatively more productive and thus earned higher wages than similar unskilled workers elsewhere in the world.”[7]

Causes of the Middle Class Squeeze[edit]

Income Changes[edit]

In 1995, 60% of American workers were labouring for real wages below previous peaks, while at the median, “real wages for nonsupervisory workers were down 13 percent from peak 1973 levels.”[7] In a study conducted in 2006 by The United States House of Representatives there were some interesting income findings that show the effects of the middle-class squeeze. According to the study, not only is real income decreasing for the middle class, but also the gap between the top wage earners and the middle earners is widening. Between 2000 and 2005 real median household income in the United States has declined by 2.5%, falling each of the first four years of the Bush Administration, falling by as much as 2.2% annually. Overall real median income has declined since 2000, by $1,273, from $47,599 in 2000, to $46,326 in 2005. According to the survey, working-class families headed by adults younger than 65 have seen even steeper declines. Although they had seen an increase in real median household income from 1995 to 2000 of 9%, since 2000 their income has fallen every year and a total of 5.4%. In actual money terms this correlates to a decrease of $3,000 from $55,284 to $52,287.[1] The other way in which income has an impact on the middle class, is through increases in income disparity. Findings on this issue show that the top 1% of wage earners continue to increase the share of income they bring home,[8] while the middle-class wage earner loses purchasing power as his or her wages fail to keep up with inflation. Between 2002 and 2006, the average inflation adjusted income of the top 1% of earners increased by 42%, whereas the bottom 90% only saw an increase of 4.7%.[3]

A 2001 article from “Time Magazine” highlighted the development of the middle-class squeeze. The middle class was defined in that article as those families with incomes between the Census Bureau brackets of $15,000 and $49,999. According to the census, the proportion of American families in that category, after adjustment for inflation, fell from 65.1% in 1970 to 58.2% in 1985. As noted in the article, the heyday of the American middle class, and its high expectations, came in the Fifties and Sixties, when the median U.S. family income (adjusted to 2001 price levels) went up from $14,832 in 1950 to $27,338 in 1970. The rising prosperity was, however, halted by the inflation of the Seventies, which carried prices aloft more rapidly than wages and thus caused real income levels to stagnate for more than a decade. The median in 2000 was only $27,735, barely an improvement from 1970.[9]

Changes in the price of Staple Consumer Products[edit]

Insurance and Health Care
Insurance and health care is an important factor regarding the middle-class squeeze because increases in these prices can put an added strain on middle income families. This situation is exactly what the House of Representatives survey shows regarding health care prices. In 2000, workers paid an average of $153 per month for health insurance coverage for their families, however, by 2005 these numbers had increased to $226 per month.[1] The effects of the price change in health care can be seen in many ways regarding the middle class. The number of people who are uninsured has also increased since 2000, with 45.7 million Americans now without health insurance, compared to 38.7 million at the start of the millennium. Also, 18% of middle income Americans, making between 40,000 and 59,999 dollars were without health insurance during 2007 and more than 40% of the 2.4 million newly uninsured Americans were middle class in 2003.[10]
The rise in prices also causes a harm to working middle-class Americans because it makes it more costly for employers to cover their employees, as shown by the fact that in 2007 60% of companies offered their workers health insurance down from 69% in 2000. Also the number of Americans who reported skipping treatment due to its cost has increased from 17% to 24% during the same time period.[3]
Energy Products
Like health care, increases in energy products can put added stress on middle-class families. Energy Prices have been rising since 2000 as well, including gasoline, home heating, and other forms of energy. Since 2000 the U.S. has seen a 52% real increase in gasoline prices, a 69% real increase in natural gas prices, a 73% real increase in heating oil costs, a 59% real increase in propane costs, and an 8% real increase in electricity cost. Overall, adjusting for inflation, this results in a cost for American families of $155 more in 2006 then they spent in 2000. Along with these direct cost increase, Americans also face indirect cost associated with higher energy prices, such as higher jet fuel prices, higher gas and diesel prices for commercial airliners, and higher natural gas prices for commercial and industrial users, and assuming these cost are passed on to consumers of these companies, it will cost the average American household $1,150 per year. Taken together these indirect and direct factors cost American middle-class families $2,360 more in 2008 than in 2000.[1]
The benefits of higher education is something that clearly correlates to higher income in later life, with findings showing that the average high school graduate earns $31,286, while the average college graduate makes $57,181, and education is often considered the gateway for upward mobility for the middle class. However, because of increases in college education costs, many middle-class Americans are missing out on a college education because of high prices, or caused them to leave college with massive amounts of debt, not allowing the middle class to enjoy the full benefits of a college education. Studies show that the average cost of a four year college or university has increased by 76% since 2000, adding to this the middle class faces struggles because of decreasing financial aid. There has been no increase in government Pell grants, while at the same time interest rates for student loans has increased to a 16 year high. These price increases don't just affect middle-class Americans trying to get into college, but they also continue to affect those who attain a college education using the high interest rates of student loans.[1] Two out of three college graduates begin their careers with student loan debt, amounting to $19,300 for the median borrower. These debts have a long term impact on middle-class Americans, as 25% of Americans who have college debt claim it caused them to delay a medical or dental procedure and 14% report it caused them to delay their marriage.[3]
Home Ownership
Home-ownership is often seen as an arrival to the middle class, but recent trends are making it more difficult to continue to own a home or purchase a home. 1 in 33 American homeowners are projected to lose their homes to foreclosure in the next few years due to sub-prime loans, and more than 40.6 million homes are projected to drop in value. Also, homeowners are more frequently having to cash out the equity on their homes to meet basic living expenses, causing homeowners equity to fall, which means American homeowners now own less of their homes than they actually did in the 1970s.[3]

Other Factors[edit]

Increases in American Debt
Americans have built up a record $956.9 billion revolving debt as of 2008, that consist mainly in credit card debt that is more than a 70% increase from a decade earlier. With the average middle-class American family carrying more than $2,200 in credit card debt.[10] Also the nations personal savings rate has become negative in 2005 for the first time since the Great Depression, with the average household spending more than they earned.[3]
Job Security Changes
More than 92% of the 1.6 million Americans who filed for bankruptcy in 2003 were middle class.[10] Along with this, manufacturing jobs have decreased by 22% between 1998 and 2008 largely due to outsourcing of American businesses.[3]
Retirement Security Changes
The squeeze on the middle class is also causing difficulties when it comes to saving money for retirement because of decreased real incomes and increases in consumer prices. In 2007, 1 in 3 American workers said they hadn't saved at all for their retirement and of those who have started saving, more than half claim to have saved less than $25,000. There has also been a shift in employer retirement plans, with a shift from traditional defined benefit pension plans to 401k plans, in which there is no individual guarantee about the amount of retirement income that will be available.[3]

Large Scale Economic Issues Associated with the Middle Class Squeeze[edit]

  • One of the major economic changes that is often associated with the middle-class squeeze is the change from a budget surplus to a budget deficit that has occurred in the 2000s. In 2000, there was a surplus of over 200 billion dollars, which became a 300 billion dollar deficit in 2005. This deterioration of the overall economic condition is believed to have led to many of the situations associated with the current economic squeeze.[1][unreliable source?]
  • Increases in the unemployment rate - During the first three years of the new millennium, the unemployment rate increased by almost 50% and still remains higher today than it was in January 2001.[1][unreliable source?]
  • There has also been a slowing of job creation in the U.S. with the economy losing 1.5 million workers during the first four years of the new millennium.[1][unreliable source?] While middle income jobs become fewer, those earning the middle income wage can purchase less with those dollars now than they once could.[11]
  • The inflation rate was also the highest it has been in 15 years in 2005; thus wages haven't been able to keep up with inflation, causing a squeeze on middle-class consumption.[1][unreliable source?]
  • The American middle class is still feeling these effects today, in 2011. With the current recession, it is becoming more and more difficult for middle-class Americans to keep their jobs. *The higher minimum wage today has encouraged workers to enter the labor market, which has unfortunately created unemployment. The real minimum wage is not what the government sets is as. The longer the minimum wage is not raised, the lower it actually is. The government imposed wage does not take inflation or productivity growth into account.
  • Another issue with the current minimum wage revolves around compliance. Currently, compliance regulations and rules over the minimum wage are weak. Typically, if a firm does not comply with the minimum wage, a settlement is made between the firm and the affected worker. In 2006, 2.2% of American workers received the minimum wage of $5.15 or less. Of these workers, about 75.8% were paid less than the actual minimum wage. This causes some workers to find it not worthwhile to pursue minimum wage jobs because they are not only competitive with the increased workforce, but if they are not actually paid the proper wage, there is only so much they can do.[12]
  • Another issue is that middle-class areas are shrinking as the income gap grows. There are increasingly issues with the rising income inequality in America. In 2007, it was determined that only 44% of American families live in middle-income neighborhoods which was down from 65% in 1970. This goes along with one of the main things that has shown the income inequality in the United States. The working class has now begun to be tied to the label working poor. From the “Occupy Wall Street” protests it is apparent that people across the country are becoming increasingly aware and upset with the income inequality in the country. The main argument is that the top 1% of the income bracket in the United States should pay a higher percentage of taxes. In general, the middle class is significantly decreasing. More and more middle-class American families are falling into the lower class. Another issue tied to this is the future. If middle income children’s families are becoming poor, they are less likely to get a good education, health care, and the same opportunities as wealthier families’ children. It is evident that not only have average Americans been greatly affected by the recession, but that our country’s future very well may being affected as well.[13]

Common Beliefs of Middle Class Americans[edit]

According to a Survey on the Middle Class and Public Policy, just 38% of middle-class Americans say they live comfortably, and 77% believe that the country is headed in the wrong direction. Another 2008 report entitled "Inside the Middle Class: Bad Times Hit the Good Life" states that 78% of the middle class say it is more difficult now than it was five years ago. The middle class also responded that 72% believe they are economically less secure than ten years ago and almost twice the number of Americans claimed they were concerned about their personal economic stability. Showing that, overwhelmingly, the American people believe the middle class is being squeezed and are in a worse economic position than they were even 5 years ago.[3]

However, some economists have other views towards the current issues that the American middle class is facing, particularly dealing with the minimum wage.

  • David Madland, Director of the American Worker Project at the Center for American Progress Action Fund believes that if the legal minimum wage was raised, it would encourage spending, investment, consumption, and therefore promote economic growth.
  • Helen Neuborne, director of the Quality Employment Unit of the Ford Foundation has a similar view. She states that if the minimum wage were raised, middle-class American families would be able to support their families and would be better able to cope with the economic effects of the recession in the future.
  • In a November 2010 study done in the Review of Economics and Statistics, it was found that raising the minimum wage did not have a direct impact on job loss. It found that by raising the minimum wage, the Federal government and state governments would give more money to the American working class which increases consumer spending. This aids the economy by giving money to the middle class and keeps money away from corporations.
  • Economist Heidi Shierholz furthered this idea by stating that a legal minimum wage of $8.25 per hour would create fifty-thousand jobs and give around ten million American workers a raise.[14][15]

See also[edit]


  1. ^ a b c d e f g h i Pelosi, Nancy (September 2006). "The Middle-Class Squeeze". Retrieved 20 November 2008. 
  2. ^ Weston, Charles (2 September 2010). "Charlie Weston: Whole generation swimming against the tide". Irish Independent. Retrieved 25 July 2013. 
  3. ^ a b c d e f g h i "The Middle-Class Squeeze 2008: A Drum Major Institute for Public Policy Overview". Drum Major Institute For Public Policy. 2008. Retrieved 2008-11-21. 
  4. ^ Global democracy: key debates edited by Barry Holden
  5. ^ http://books.google.co.uk/books?id=z5ZZMCGgQFQC&pg=PA124&dq=american+blue-collar+real+wage+growth+1965&hl=en&sa=X&ei=ppqSUfKNEs740gX3oIDICQ&ved=0CDcQ6AEwAQ#v=onepage&q=american%20blue-collar%20real%20wage%20growth%201965&f=false
  6. ^ http://www.opendemocracy.net/godfrey-hodgson/america-divided-broken-social-contract
  7. ^ a b Globalization and the Challenges of the New Century: A Reader by Patrick O'Meara (Editor), Howard Mehlinger (Editor), Matthew Krain (Editor)
  8. ^ Leonhardt, David (2007-04-25). "What's Really Squeezing the Middle Class?". NY Times. Retrieved 2008-04-03. 
  9. ^ Time. 2001-06-24 http://www.time.com/time/magazine/article/0%2C9171%2C143633%2C00.html |url= missing title (help). 
  10. ^ a b c Schlesinger, Andrea (2004-06-03). "The Middle-Class Squeeze". Retrieved 12 November 2008. 
  11. ^ Hall, Kevin G. (2008-01-16). "New inflation Data explain middle-class squeeze". McClatchy Newspapers. Retrieved 2008-04-03. 
  12. ^ Borjas, George (2010). Labor Economics. New York, NY: The McGraw-Hill Companies Inc. ISBN 978-0-07-351136-8. 
  13. ^ Tavernise, Sabrina (2011-11-15). "Middle-Class Areas Shrink as Income Gap Grows, New Report Finds". The New York Times. 
  14. ^ http://www.americanprogress.org/events/2011/06/minimumwage.html
  15. ^ http://www.americanprogressaction.org/issues/2011/06/higher_minimum_wage.html