America's Slowly Disappearing Middle Class

The American middle class, once the envy of the world (and occasional object of its derision) is shrinking, according to a new report from the nonpartisan Pew Research Center.

The report, which looked at the U.S. and 11 Western European countries, found that in the nearly 20 years from 1991 to 2010, the portion of American adults living in middle-class households fell from 62% to 59%.

It defined middle-class households as those with incomes of anywhere between two-thirds and twice that of their country’s median disposable household income. In the case of the U.S., that meant a range of roughly $35,000 to $106,000 a year for a household of three. (See: Which Income Class Are You? for more information.)

The study didn’t consider other common markers of middle-class status, such as occupation, educational attainment or home ownership.

“In part, the shift out of the middle class is a sign of economic progress, irrespective of changes in household incomes overall,” author Rakesh Kochhar, the center’s associate director for research, noted in the report. “This is because the outward shift is accompanied by a move up the income ladder, into the upper-income tier, in all countries with a shrinking middle class.”

But, he added, more ominously: “At the same time, there is movement down the income ladder in most countries with a shrinking middle class.”

While Americans’ 2010 median household income of $53,000 was the highest of any country in the study except Luxembourg, the U.S. also had the smallest percentage of people considered middle class and bigger bulges at the opposite ends of the income scale.

“The American experience reflects a marked difference in how income is distributed in the U.S. compared with many countries in Western Europe,” the report explained. “More specifically, the U.S. has a relatively large upper-income tier, placed well apart from an also relatively large lower-income tier. This manifests not only as a smaller middle-income share but also as a higher level of income inequality.” (Read: Why the Middle Class Is Not Feeling the Wealth Effect.)

In the U.S., for example, 26% of Americans were classified as lower income, 59% as middle income and 15% as upper income. In Germany, those numbers were: 18% (low), 72% (middle) and 10% (upper). In Denmark, the difference was even more striking: 14 percent, 80 percent, and 7 percent, respectively.

Although the U.S. may be the most dramatic example in some respects, it was not the only country to see a relative decline in its middle class. In fact, eight of the 12 countries studied reported declines.

Besides the U.S., the nations with declining percentages of middle class adults were Denmark, Finland, Germany, Italy, Luxembourg, Norway and Spain. Those with growing middle classes were France, Ireland, the Netherlands and the U.K. Germany saw the steepest decline, falling from 79% in 1991 to 72% in 2010. Ireland reported the greatest rise in that same period, from 60% to 69%.

Regardless of country, the decline of the middle class and the accompanying rise in income inequality, the Pew report noted, “present an adverse climate for economic growth. A relative decline in the incomes of lower- and middle-income families may create a drag on overall consumption in the economy, lead to excessive borrowing by these families or provide disincentives to invest in education.”

However, put in an international perspective, the U.S. and Western Europe are still relatively well off.

“By world standards, the countries featured in this report are all high income,” Pew noted. “Middle-income households in Western Europe and in the U.S. are in the highest income tiers globally, and most lower-income households in these countries would be in the global middle class.”

For its report, titled “Middle Class Fortunes in Western Europe,” Pew analyzed data collected by the Cross-National Data Center in Luxembourg. The center, in turn, draws on government data and other sources in many other countries, including the Current Population Survey conducted by the U.S. Census Bureau.

The middle class in the U.S., as defined by median household income, is shrinking, with some Americans moving up and others down. Compared with 11 Western European nations, the U.S. has the smallest percentage of population considered middle income and the largest percentages in both the lower- and upper-income categories. (See also: Why the American Middle Class Is Shrinking.)