Monday, March 2, 2015

Shrinking Middle Class or Class Migration?

I read recently that 19 of 20 poorest families moved into higher quintiles and 16 of those 20 becoming part of the middle-class (top three quintiles) over a sixteen year period. This seems radically different than what I'd heard/read before: the rich have been getting richer and the poor have been getting poorer. However, a Federal Reserve economist has said, "The rich may have gotten a little richer but the poor have gotten a lot richer."

And then on the other side are those touting the data that we have less mobility than many other nations. In fact, says one, 42 percent of men who start in the lowest quintile stay there; another says 65 percent stay there. The article says that hardly anyone disagrees. But those in the poorest class have more 'stuff' than those in the poorest class 40 years ago. Their incomes have grown even though their place in the income distribution hasn't (i.e. their income has grown 700 percent in 46 years in raw/absolute dollars).

Has their purchasing power increased? According to the Census Bureau, the household incomes of the bottom quintile has barely increased since 1967 (about 11%--in 2013 dollars) at an annual rate of 0.2%. It has dropped 16 percent since its peak in the year 2000.  They have more stuff because they have more debt? Tough call to make: Fed Reserve data shows overall debt service levels haven't changed much in the last 35 years.

The middle quintile's income meanwhile has grown 30 percent in the same period, using the same dollar basis; the fourth quintile grew by 45 percent or so. Perhaps this is what's keeping the Fed's debt service levels flat.

So if most households have moved up, then others must have moved down. And roughly half perhaps moved up and moved down in order to stay in the same place at the end of the study periods.

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