Is the Middle Class Shrinking?

By Stephen Koepp

When the drift was first spotted in the early 1980s, it stirred only academic interest. But this year, as more economists and politicians began to take note of it, the seemingly slight squiggle on the demographic chart has sparked a fervent debate. The great American middle class, the provocateurs contend, is no longer so great. It is shrinking steadily, goes the theory, and shedding its members into the economic extremes of wealth and poverty. "There has been a thinning of the middle class," says David Bloom, an associate professor of economics at Harvard. "As society becomes more polarized, it has more 'haves' and 'have-nots,' with fewer in between."

The economists who highlight this phenomenon tend to be liberals; many of them blame the Reagan Administration for failing to help Middle Americans adapt to the postindustrial age. Millions of citizens, they contend, have lost their middle-class jobs in aging industries like autos and steel and have plunged into the minimum-wage realm of floor mopping and hamburger flipping. By failing to halt the middle-class shrinkage, the argument goes, the U.S. could allow itself to become a two-tiered society of rich and poor. Declares M.I.T. Economics Professor Lester Thurow: "Wherever one looks, one now finds rising inequality."

At least one set of statistics appears to confirm an erosion of the middle class, though hardly an upheaval. While the middle class has never officially been defined, the group could reasonably be described as those families with incomes between the Census Bureau brackets of $15,000 and $49,999. According to the census, the proportion of U.S. families in that category, after adjustment for inflation, shrank from 65.1% in 1970 to 58.2% in 1985 (see chart). The trend is far from being a completely odious phenomenon, though. The statistics show that more families departing the middle class have moved up than down. Families with incomes of $50,000 or more -- considered the gateway to the upper class -- increased from 13% of the population to 18.3% during the 1970-85 period. At the same time, the proportion of families below $15,000 grew from 21.9% to 23.5%.

The shrinkage theory is debated by scholars who choose to measure the middle class in different terms, whether by changing the income brackets or focusing on job categories. While some researchers see a smaller shrinkage, or barely any at all, many are convinced that the change is real. "No matter what definition you use, you come up with the phenomenon," says James Smith, a senior economist for the Rand Corp.

Any scientific measure of the middle class, however, entails drawing arbitrary brackets, both economic and psychological, around the group. At least one economist thinks this is folly and that Middle America is essentially a state of mind. Says Lawrence Lindsey, assistant professor of economics at Harvard: "A middle-class person is someone who expects to be self-reliant, unlike the upper class with its unearned wealth or the lower class with its dependency on society. Far from declining, the middle class is bigger than ever, and its ethic is alive and well."

The most important factor affecting family incomes has been the entry of more and more women into the work force. Following the rampant inflation of the 1970s, having two incomes was the only way many households could maintain their standard of living. For some families, however, two salaries have been enough to lift them out of the middle class. Neither Biologist Cam Patterson nor his wife Dorothy, a library assistant, both 37, has a particularly high- paying job. But their combined salary of $58,000 is enough for them to afford the $300,000 house they are building in Normal Heights, Calif. Even though the Pattersons hardly feel like the upper crust, they realize they are no longer typically middle class either. Says he: "I think of the middle class as Archie Bunker, the guy who makes $35,000 while his wife stays home and cooks macaroni."

By doubling up their substantial incomes, some young couples swell the ranks of the well-to-do by creating one upper-class family instead of two middle-class ones. Says Harvard's Bloom: "A pairing-off based on economics is occurring. Higher-income men and higher-income women are tending to find each other." Manhattanites Anthony Chase, 31, and his wife Debra, 30, who are both from solidly middle-class backgrounds, are likely to exceed by far the financial dreams of their parents. The Chases started dating at Harvard, where Debra earned a law degree and Anthony picked up a combined law degree and M.B.A. Married five years, they have a joint income of more than $150,000 from Anthony's investment-banking position and Debra's corporate law post.

It is the flip side of the middle-class exodus that has many liberal scholars in an uproar. Economist Barry Bluestone of the University of Massachusetts believes the shift in the U.S. economy from unionized, factory work to service-industry professions has brought a substantial loss of jobs with middle-class pay. The blue-collar jobs tended to be unionized, goes the argument, while the new service industries typically offer no such wage and , job protection. Says Michael Boskin, a professor of economics at Stanford: "Some sectors of the middle class that had implicit security in their jobs have been rudely awakened."

Keith Grant knows that from painful experience. A Chicago steelworker, Grant was laid off from his $30,000-a-year job two years ago, on the day before he and his wife planned to close the purchase of their first house. That dream is postponed now. Grant, 28, earns only $13,000 as a maintenance worker at a Holiday Inn; his wife Pamela stays home and cares for their three children and stuffs envelopes to earn household money. But Grant is looking for a higher-paying job as an electrician. Says he: "I've been brought up in the middle class. I'll be damned if someone's going to take that away from me."

Many workers fall victim to business cycles that sharply cut the going rate for their skills. Patrick Walter was comfortably supporting his wife and their two children on his $35,000 pay as a welder on an oil rig off the Louisiana coast when the petroleum price slump hit and cost him his job. Says he: "It doesn't take long for everything to go to hell. I might never make what I used to." Walter and his family packed up and migrated to Oregon, where they moved in with his wife's parents, and he took a $20,000 welding job.

Another group that is swelling the ranks of the low-income class is single parents, according to M.I.T.'s Thurow. Unwed mothers and divorcees from middle-income families often slide into the lower class when they try to get by on their own. Reason: they may have the double burden of child custody and a lack of marketable job skills. Carol Kuypers, 32, of Harper Woods in suburban Detroit, earns $13,500 as an accounting clerk, or about 61 cents a week over the limit for getting federal food assistance. The unmarried mother of a 15-month-old son, she has to spend $200 a month for day care, which eats up about one-quarter of her take-home pay. For help with room and board, she has taken in her brother John, a factory worker, as a roommate.

Not all trend watchers, however, believe the middle class is being seriously eroded. Neal Rosenthal, an economist for the Government's Bureau of Labor Statistics, sees no real polarization in wages, for example. He found increases between 1973 and 1982 in the number of workers in middle- and upper- salary positions and a decrease in the low-income category. In this view, the middle-class shrinkage seen by other economists may be caused by the impossibility of matching some displaced workers to the new middle-class jobs that are being created. Observes Robert Lawrence, a senior fellow at the Brookings Institution: "If a job in the automobile industry in Detroit is replaced by an insurance job in San Francisco that pays the same salary, the distribution of income will not change. However, the autoworker's life will."

Other dissenters acknowledge that the size of middle-class income might have been squeezed a bit but chalk up the problem to temporary factors. Gordon Green, assistant chief of the population division at the Census Bureau, believes the flood of young baby boomers into the job market is responsible for a dip in middle-class wages. Says Green: "Since so many of the baby boomers were in entry-level jobs, they pulled down the overall average. As they get more experienced, productivity should go up and their income as well."

Nonetheless, even Middle Americans whose salaries put them squarely in the middle class feel they are slipping below a comfortable standard of living. The material rewards that Middle Americans had begun to take for granted -- a house, vacations, college for the children -- have become more difficult to obtain. The heyday of the U.S. middle class, and its high expectations, came in the 1950s and 1960s, when the median U.S. family income -- adjusted to today's price levels -- leaped from $14,832 in 1950 to $27,338 in 1970 (see chart). But the prosperity spiral was halted by the inflation of the 1970s, which carried prices aloft more rapidly than wages and thus caused real income levels to stagnate for more than a decade. Last year's median was only $27,735, barely an improvement from 1970.

The trend has produced what might be called the middle-class blues, in which today's young middle-class families live under the threat of downward mobility, fearful that they will be unable to meet the standard set by the previous generation. Says David Jacobsohn, 31, a computer systems analyst in Boston: "I'm not doing as well as my father at this point, but I think in ten years or so I'll be able to." Many people who went into middle-class careers are now bitterly disappointed. Ella Parham, 39, of Boston, earns $31,400 as a third-grade teacher in the city schools but feels she has slipped into the lower class. A single parent, she supports two daughters, ages 16 and 19, and a 3-year-old grandchild. "I surely don't feel like I'm middle class," she , says. "I feel like we're at the bottom of the ladder."

Any substantial decline of the middle class -- even if it is partly psychological -- would be ominous for the U.S. as a whole. It is the middle class whose values and ambitions set the tone for the country. Without it, the U.S. could become a house divided in which Middle Americans would no longer serve as a powerful voice for political compromise.

Scholars who worry about the polarization of U.S. society believe they already see evidence of it in the business world. The retailing industry, for one, is clearly aiming at two markets: upscale (Saks Fifth Avenue) and downscale (K mart). Contends Barbara Ehrenreich, a fellow at the Washington- based Institute for Policy Studies: "Whether one looks at food, clothing or furnishings, two cultures are emerging: natural fiber vs. synthetic blends; hand-crafted wood cabinets vs. mass-produced maple; David's Cookies vs. Mister Donut." The result of such polarization of society, she warns, could be a warping of the country's identity.

What can be done, if indeed something should, to safeguard the center? M.I.T.'s Thurow believes the Government should take a stronger hand in helping industries improve the country's global competitiveness and halt the outflow of well-paying jobs. The Brookings Institution's Lawrence disagrees, recommending instead that the Government should make more of an effort to retrain and relocate workers whose skills have become unwanted.

It is only because the middle class is so sacred in the U.S. that even its potential shrinkage is so controversial. Virtually everyone agrees that America needs to maintain its middle class. While the split-level home and station wagon are modern inventions, the stabilizing influence of a large middle class has been highly valued for quite a bit longer. "Of the three classes," observed Euripides, "it is the middle that saves the country."

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With reporting by Gisela Bolte/Washington and Jon D. Hull/Los Angeles