fedgazette

Just what is the middle class, and other stuff

Terry J. Fitzgerald - Senior Economist and Vice President
Ronald A. Wirtz - Editor, fedgazette

Published September 1, 2008  |  September 2008 issue

Any discussion of the middle class is more complicated than it might first seem. Look no further than the simple exercise of defining the middle class. Indeed, there’s no official government definition, but the government provides a wealth of data that allow anyone with a spreadsheet to create one.

As a 2007 report by the Congressional Research Service (CRS) pointed out, “What constitutes the middle class is relative, subjective, and not easily defined.”

Researchers often use median income data—the exact middle observation, where half are doing better and half more poorly—as a proxy for the middle class. (This fedgazette analysis focuses on median income and wage data.) Other statistical definitions of the middle class include the use of the middle “quintile” (households earning between the 40th and 60th percentile of the population) or the middle three quintiles (between the 20th and 80th percentile). Using the latter definition, the middle class earns roughly between $19,000 and $92,000 a year, according to the 2007 CRS report.

But how people view their own income status is the antithesis of Lake Wobegon: Everybody sees themselves as average. Some surveys have found that upward of 90 percent of the population considers itself middle class. But there is also a lot of variation in who professes to be middle class. A 2008 survey by the Pew Research Center found that only about half of all adults put themselves in the middle class. But four in 10 with annual family incomes below $20,000 called themselves middle class; one-third of those with incomes over $150,000 said the same. Few people report themselves to be rich.

Such subjective definitions add to the complexity of any middle class analysis, and comparisons with other analyses need to consider and factor in the many definitions and adjustments used in this analysis.

DATA SOURCE: Median household income and median hourly wage series were calculated using 1980, 1990 and 2000 U.S. Census data and from the Census Bureau’s American Community Survey from 2005 and 2006. These data were obtained from the Integrated Public Use Microdata Series (IPUMS-USA) maintained by the Minnesota Population Center. The 1980 census (which samples 5 percent of the population) contains data on approximately 200,000 households and 560,000 people in district states. The 2005 ACS and 2006 ACS (which sample 1 percent of the population) each contain district data for about 55,000 households and 138,000 people.

DATA LIMITATIONS: Although there are a large number of household observations, statistical considerations still limit how finely the data can be subdivided at the geographic level. This is especially true in the Upper Peninsula of Michigan, but it is also a major consideration for less populous states like Montana, North Dakota and South Dakota. For example, a reliable estimate was not available of the median household income of single male householders with children in North Dakota because the sample group is too small.

The data available from the annual ACS for 2005 and 2006 contain far fewer observations than are available from the 1980 federal census. So to obtain a more reliable estimate, data from both recent years were combined; estimates of median hourly wage and median household income for 2006 were derived from data for 2005 and 2006. Since states experienced an increase in wages and income during 2006, statistics here may slightly underestimate the growth in incomes and wages during the 1979–2006 period. However, this effect is very small, and does not change the story.

Data for the exact portion of Wisconsin that lies within the Ninth District are not available, so the entire state is included in this analysis. The Upper Peninsula is the only part of Michigan that is located in the Ninth District, but data for just the U.P. were available, and therefore are included in the analysis. However, the population of the U.P. is very small, which makes for even smaller (and less precise) estimates of subpopulations. Nonetheless, these data should provide a reliable—if inexact—sense of long-term trends.

Definitions, terminology

HOUSEHOLD: A household consists of all the people who occupy a housing unit. A house, an apartment or other group of rooms, or a single room, is regarded as a housing unit when it is occupied or intended for occupancy as separate living quarters. A household includes the related family members and all the unrelated people, if any, such as lodgers, foster children, wards or employees who share the housing unit. A person living alone in a housing unit, or a group of unrelated people sharing a housing unit (such as partners or roomers), also counts as a household. For the purposes of this analysis—to maintain more uniformity across households in each category—all members must be of one family (related by birth, marriage or adoption) and there must be at most one married couple present. About 10 percent of households in the district do not satisfy these requirements and are assigned to a generic “all other” category.

HOUSEHOLDER: A householder is typically the person (or one of the persons) in whose name the housing unit is owned or rented.

WAGE DATA AND WORKERS: The median hourly wage is for wage and salary workers between the ages of 18 and 64.

INFLATION ADJUSTMENTS: All data are adjusted for inflation using the implicit price deflator for personal consumption expenditures as published by the U.S. Bureau of Economic Analysis.

CENSUS MONEY INCOME: Data on consumer income collected in the Current Population Survey by the Census Bureau cover money income received (exclusive of certain money receipts such as capital gains) before payments for personal income taxes, Social Security, union dues, Medicare deductions and other items. Money income does not include income-like, noncash benefits such as food stamps, health care coverage, rent-free housing and other government-based services. Money income also does not include noncash benefits provided by private employers, including subsidized health care coverage, retirement accounts and assistance programs for things such as education, child care and transportation.

Terry J. Fitzgerald & Ronald A. Wirtz

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