U.S. middle class no longer world's richest, study finds
The American middle class, long the single most affluent in the world, has lost that distinction.
While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.
The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality. Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of U.S. households is fully benefiting from it. Median income in Canada rose to a tie with median U.S. income in 2010 and has most likely surpassed it since. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.
In European countries hit hardest by recent financial crises, such as Greece and Portugal, incomes have of course fallen sharply in recent years.
The income data were compiled by LIS, a group that maintains the Luxembourg Income Study Database. The numbers were analyzed by researchers at LIS and by The Upshot, a New York Times website covering policy and politics, and reviewed by outside academic economists.
The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.
LIS counts after-tax cash income from salaries, interest and stock dividends, among other sources, as well as direct government benefits such as tax credits.
The findings are striking because the most commonly cited economic statistics — such as per capita gross domestic product — continue to show that the United States has maintained its lead as the world’s richest large country. But those numbers are averages, which do not capture the distribution of income. With a big share of recent income gains in this country flowing to a relatively small slice of high-earning households, most Americans are not keeping pace with their counterparts around the world.
“The idea that the median American has so much more income than the middle class in all other parts of the world is not true these days,” said Lawrence Katz, a Harvard economist who is not associated with LIS. “In 1960, we were massively richer than anyone else. In 1980, we were richer. In the 1990s, we were still richer.”
That is no longer the case, Katz added.
Three broad factors appear to be driving much of the weak income performance in the United States. First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the economy to maintain its share of highly skilled, well-paying jobs.
Americans 55 to 65 years old have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in the rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those 16 through 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.
A second factor is that companies in the U.S. economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.
And because the total bounty produced by the U.S. economy has not been growing substantially faster in recent decades than that produced by the economies of Canada or Western Europe, most American workers are left receiving meager raises.
Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.
Janet Gornick, the director of LIS, noted that inequality in so-called market incomes — which does not count taxes or government benefits — “is high but not off the charts in the United States.” Yet the American rich pay lower taxes than the rich in many other places, and the United States does not redistribute as much income to the poor as other countries do. As a result, inequality in disposable income is sharply higher in the United States than elsewhere.
Whatever the causes, the stagnation of income has left many Americans dissatisfied with the state of the country. Only about 30 percent of people believe the country is headed in the right direction, polls show.
“Things are pretty flat,” said Kathy Washburn, 59, of Mount Vernon, Iowa, who earns $33,000 a year at an Ace Hardware store, where she has worked for 23 years. “You have mostly lower level and high and not a lot in between. People need to start in between to work their way up.”