A popular notion across the entirety of the political spectrum is that things are not as good today as they were 40-50 years ago for “middle class” Americans. The causes vary depending on the ideology of the speaker. Progressives believe the “middle class” suffers from attrition due to the actions of the wealthy. Conservative commentators, on the other hand, believe that people are discouraged with the economic situation caused by a bevy of nebulous “socialist policies” ranging from the welfare state to supposed job growth stagnation from excess regulation.
What these two causes célèbres demonstrate, however, is less about economics than it is about messaging and ideology.
Both are fantastic ways to lie through statistics. Take snippets of data that are factually true, remove them from their context, and repackage them as gloom and doom.
True, “middle class” Americans are now only a plurality rather than a majority. Taken alone this sounds terrible. Yet taking a closer look, this obscures a central point: There’s been more growth along the upper end of the income distribution than there has been in the lower end. Or more simply – more people moved upward from the middle class than downward. It’s worth noting, of course, that how we define “middle class” can be tricky. In this case, we’re using income and wealth that can be compared (relatively) directly between income brackets. It does not reflect self-perception of where you belong. This is, of course, fortunate because a large group of professional class individuals have a tendency to be oblivious to the reality of income distribution. (Basically it’s the people complaining they’re “barely breaking even” at $250k+/year.)
On the flip side, we have arguments about labor force participation. The underlying thesis is that a combination of the welfare state and burdensome regulation have decreased both the desire to keep looking for jobs (potential employees) and an appetite to create new jobs (employers). Alarmingly, from the peak of the LFP rate in 2000, the 2010s is marked by the “lowest” rate of LFP since the 1970s. That, of course, is just half of it.
Rather than being a sign of the end times for American capitalism, however, the decline in LFP rate is perfectly natural. As baby boomers age, a good number of them can simply retire. This results in the first set of exits from the labor market. Indeed, we know that the Great Recession of 2007-2009 actually DELAYED the labor force exit of a fair number of boomer generation workers. The fact that their exit from the labor force seems to have picked up steam in the last couple of years is a GOOD thing. It means they’re now feeling secure enough to quit working.
Secondly, the cohort aged between 16 and 24 also saw a decline in LFP. Onerous regulations such as the minimum wage, the employer mandate in PPACA, workplace regulations, prohibition of letting employees/ Yet again, changes to social norms and cohort age group is a bit of a predicting factor here. While there still is a population of NEET (Not in Education, Employment, or Training) within that age cohort, the increase was negligible compared to the much larger increases in secondary education (high school) completion and/or attendance. In effect, fewer young people are working or looking for work because they’re busy studying. (Two good articles examining the issue are A Cohort Model of the LFP Rate by Kudlyak and Youth Labor Participation Continues to Fall, but it Might be for a Good Reason by Canon, Kudlyak, and Yiu.)
These two points aren’t meant to put aside the real issues of income inequality or barriers to employment. Unlike the dire predictions tossed around, however, the reality is that the picture isn’t as bleak as folks would like to portray it. Rather than upending the entire system, the actual problems are things where tweaking variables along the margins is the most logical course of action.