Decline of the middle class

2016 February 24
by Daniel Lakeland

There's a lot of talk about the middle class these days. I was playing with Quandl in R getting rapid easy access to financial/economic datasets, and plotting things. I made the following graph:

Fraction of Average Productivity going to wages in a middle class household.

Fraction of Average Productivity going to wages in a middle class household.

The way this works is I'm plotting the median household income as a fraction of a measure of productivity GDP/WorkingPerson (GDP/(LaborForceParticipation * Capita)) and then dividing by the current average number of wage earners per household (1.3, I didn't find a timeseries of wage earners per median household). It's a dimensionless ratio (dollars / (dollars/person) / persons = 1) that is related to the fraction of what's produced that is taken home by a typical middle class household (median income).

Anyway, what you can see is that the percentage of productivity that goes to wages has declined steadily throughout the time period. The middle class takes home a smaller fraction of what's produced than they ever have since 1985. It would be better to see how number of wage earners changed in time. But since it's in the denominator, and I believe it's gone up in time, using the full wage-earners per household timeseries would accentuate this decline, not eliminate it.

 

One Response leave one →
  1. Daniel Lakeland
    February 25, 2016

    Also, labor force participation is related to 15yo and older, so when we calculate GDP/working_person we're over-estimating the working people, which under-estimates productivity, which means that these are all over-estimates of the take-home fraction, which means that the whole curve should be a little lower... further pointing out how the middle class is keeping a pretty small fraction of average production.

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