Second Opinion on Middle Class Income

http://www.futureofcapitalism.com/2011/06/second-opinion-on-middle-class-income

A "Second Opinion on the Economic Health of the American Middle Class" is the title of a new paper from the National Bureau of Economic Research by Richard Burkhauser of Cornell University, Kosali Simon of Indiana University, and Jeff Larrimore of the Joint Committee on Taxation. Here's the abstract. The paper begins by noting that, since 1967, median household income as measured by the Census's March current population survey "has consistently grown over time controlling for short- term market conditions. However, this was not the case over the peak years (2000-2007) of the first business cycle of the 21st Century." It goes on:

This highly visible measure of the decline in the real economic resources available to middle class Americans is often discussed alongside research using IRS administrative records by Piketty and Saez (2003) and Saez (2009) showing that the fraction of market income going to the top 10 percent of tax units is at its highest level since at least 1917. Together, these findings suggest that the middle class is not sharing proportionately in the fruits of American economic growth. Such concerns have manifested into the popular press (see, e.g. Johnson 2007, Piketty and Saez 2007, Goldman 2008, Lahart and Evans 2008, Leonhardt 2008), and have led to calls for policies that would increase the share of income growth going to the middle of the income distribution.

Not so fast, say the authors of the paper: "we find that the evidence of a middle class decline is far from clear, and that such results are highly sensitive to how available resources are measured."

One factor confusing understanding of the issue, they say, is the difference between "tax units" and "households," which "may appear to be trivial." In some cases "an individual's tax unit and household unit are exactly the same," but in other cases — "cohabiters, roommates who share expenses, children who move back in with their parents or older parents who live with their adult children" — households will contain more than one tax unit.

Another factor is the value of "value of employer provided health insurance benefits, Medicare and Medicaid," which often are not included in assessments of how the "middle class" is faring.

The bottom line: "when using our broadest measure of available resources—post-tax, post-transfer size-adjusted household income including the ex-ante value of in-kind health insurance benefits—median income growth of individual Americans improves to 36.7 percent over the period from 1979 and 2007, and by 4.8 percent between 2000 and 2007."

This is a pretty important paper for those skeptical about the narrative that "middle class" income has stagnated over the past 30 years while the rich have gotten richer.

by Ira Stoll  |  Jun 27, 2011 at 10:17 am Related Topics:  Education, Health Care, Income Inequality, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list