Abstract
In 2010, the US Department of Commerce, commissioned by the White House Middle Class Task Force, recommended six indicators that define the middle class: having one’s own home, a car or two in the carport, taking a family vacation every year, sending kids to college, and having some retirement savings. We used the Consumer Expenditure Survey (CE) data to estimate the size of American middle class in selected years from 1988 to 2015 using three empirical variations of this definition and to test if there were upward or downward trends during these years. We found that the size of the American middle class was definitely on the decline between 1988 and 2015 for all three definitions. Multivariate analyses show that variations in total household annual expenditure and sociodemographic variables could not explain the decline. In fact, adjusting for these controls made the decline of the middle class over time more severe.
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Notes
Unfortunately, the Pew report did not provide information on what approximate percentiles the $20,000 and $150,000 marks represented in 2008.
For liquid savings, we summed up non-retirement financial assets in checking and brokerage accounts (CKBKACTX), savings (SAVACCTX), securities such as bonds and stocks (SECESTX), and US savings bonds (USBNDX) before 2013. The CE changed its financial assets subcategories in 2013. As such, for 2013 and later, we summed up non-retirement financial assets in checking, savings, money market, or CDs (LIQUIDX), directly-held stocks, bonds, and mutual funds (STOCKX), and other financial assets (OTHASTX). While this was as close of a match as possible in our judgment, we unfortunately did not have a way of ensuring perfect data consistency due to these methodological changes so caution needs to be exercised when interpreting these data. A household was classified as having missing data on savings if it had no valid reporting in any of the categories based on which we constructed the savings variable. Our data show that less than 2% of our sample had missing data (e.g., invalid responses, do not know, or refuse to report). Considering the low percentage of missing, we excluded these households from our analysis.
An additional practical reason for using total expenditure instead of income is that the CE changed methodologies during the time represented in the data series we used. Through 2003, the CE income data relied on reported values, which might be biased due to missingness. Starting from 2004, missing results on income were imputed.
Adding “single father” and “single mother” categories may yield interesting results. However, given our particular variable specification, adding these categories will lead to a near-singular matrix situation in our regression analysis because “single father” is exactly expressible by “single male = 1”, “number of other adults = 0” and “number of children > 0” and “single mother” is exactly expressible by “single female = 1”, “number of other adults = 0” and “number of children > 0”.
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Acknowledgements
We thank Dr. Geoffrey Paulin (Bureau of Labor Statistics) and Dr. Jason Murasko (University of Houston – Clear Lake) for their valuable guidance to our data construction and analyses. We also thank three anonymous referees for their insightful comments.
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Fan, J.X., Zan, H. The Decline of the American Middle Class: Evidence from the Consumer Expenditure Surveys 1988–2015. J Fam Econ Iss 41, 187–199 (2020). https://doi.org/10.1007/s10834-019-09651-1
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DOI: https://doi.org/10.1007/s10834-019-09651-1