Is the middle class shrinking?

The American middle class has changed in some critical ways since 2000. The middle class is older and less likely to be married. Those in the middle class are working less and earning less money. And government programs are playing a more prominent role in the economic well-being of those in the middle 20% of the US.

Pew Research Center defines middle-class households as making two-thirds to double America’s median income. That adds to an income range of about $30,000 to $90,000 for single Americans in 2020 dollars. But there are other ways out there that the middle class could be defined, as seen in a Brookings analysis of 12 definitions — including Pew’s.

If all American households are divided up by their total income into five groups, the middle class would be the middle 20% of income earners. By defining it in this way, the middle class will always be a fifth of the total population in the US. As of 2019, about 29.9 million households belong to the group.

The middle 20% shares some key demographic characteristics with the general population. Like the American population, those in the middle are getting older. From 2000 to 2019, the average age for heads of families increased from 47 to 49 years old.

A higher share of non-elderly middle-class families is unmarried, going from 50% in 2000 to about 55% in 2019. Across all families, the share of unmarried non-elderly families stayed at about 43% between 2000 and 2019.

From 2000 to 2019, the share of middle-class families participating in the labor force decreased from about 67% to 63%. Those working members of the middle class are earning less as of 2019 than they were in 2000. The average wage income fell about 7%, from $39k to $36k, in 2019 dollars. This may be partly because the average hours worked per week has also dropped from about 43 to about 40 hours per worker.

Of the total income earned by the middle class, the percentage of income from government transfers has grown from about 18% in 2000 to about 28% in 2019. This means that despite falling wage income, total income for the middle class increased from $67,044 to $72,868 due to government transfers. This trend holds for the country: on average, transfers accounted for about 17% of total income in 2017, up from about 12% in 2000.

Sales data indicates that inflation is driving some upper-middle-class consumers to Walmart, which recently saw its sales grow. The company’s chief financial officer, John Rainey, told CNBC that nearly 75% of Walmart’s recent market-share gains came from “customers with annual household incomes of $100,000 or more” who are turning to the big-box stores’ grocery aisles.

The Middle-Class Reset manifests itself in six key trends:

  • Fickle consumers: middle-class consumers typically demand brands to connect with and cultivate loyalty, as they are better-informed and digitally connected. Their purchasing decisions are driven by the pursuit of value (and value is more than a nice price)
  • Trading up, trading down: middle-class consumers often compromise in some categories to splash out in others. Also, they trade up and down simultaneously in the same category (for example, trading up in quality but cutting back on quantity)
  • Glorified frugality: middle-class consumers are increasingly frugal, who “make do and mend” and sell their used items. Affordability is critical, but reducing waste (and thus, environmental impact) is also essential.
  • The sharing middle: sharing, renting, and borrowing what is needed, especially when it is required only sporadically, allows the middle class to access goods and services without the cost of ownership
  • From having to be: as they choose to own less, middle-class consumers can instead direct their spending towards doing, seeing, and feeling things they enjoy.
  • The thrill of the deal: middle-class consumers scale back their spending and economize not only out of necessity but also because saving money and bargain-hunting has become cool, exciting things to do. The hunt for the deal is as exciting as the deal itself.

While marketers continue to hunt for new customers, they’re forgetting too much about the shrinking middle class.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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