The U.S. economy is killing off the middle class

http://www.nytimes.com/2015/01/26/business/economy/middle-class-shrinks-further-as-more-fall-out-instead-of-climbing-up.html

by bootload • 11 years ago

53 54 11 years ago

nytimes.com

bootload• 11 years ago

source: Brent Staples https://twitter.com/BrentNYT/status/559796286569062400

lifeisstillgood• 11 years ago

The telling point in this article is just glanced upon - that those who stayed in middle class are covered by Medicare or welfare. That a free health care system helps buffer people against sudden shocks - and without it the hollowing out is worse.

zaroth7• 11 years ago

Medicare, and dozens of other welfare programs raise the marginal tax rate in some parts of the curve up to 95% for the middle class. Since earning the money is not free, and you keep virtually none of it, working more you end up with less.

Increasing the payouts for earning less, not surprisingly, erodes the middle class. Either you are determined enough to work more to earn less and maybe in a few years come out on the other side of the chasm, or you work less and immediately benefit from it.

Check out Figure 1 (page 6) in this CBO report, and note it's worse now than when this was written;

http://www.cbo.gov/sites/default/files/cbofiles/attachments/...

It's amazing how little value you actually gain from the first $60k of earnings! If you prefer a more newsy analysis;

http://www.economist.com/news/united-states/21585010-america...

maxerickson2• 11 years ago

The only step in Medicare taxes occurs at $200,000 (or $250,000 for a married couple). Given that those numbers are well above the cap for social security (which provides a nice break in marginal rates), I doubt that Medicare taxes are factoring into decisions to work more or not.

davidw• 11 years ago

The US spends a huge portion of its GDP on health care - more than anywhere else:

http://en.wikipedia.org/wiki/List_of_countries_by_total_heal...

But this sounds like politics, so ... article flagged.

minthd• 11 years ago

Any free links to the content ?

zaroth7• 11 years ago

Google search for the title and click through.

sdoering2• 11 years ago

Actually the exact same thing is happening in Europe. A lot of formerly well paying middle income jobs is being automated and rationalized, whereas a lot of new low level income jobs and lot less high level income jobs are being created.

Where good education formerly could save you and your family a good living, it now has to be an excellent education, where even both persons in an household have to work, to make ends meet. or in lower income jobs, in the case of Germany, people have to work two or three jobs, or depend on substitutions from the state.

It is economically speaking rational, to automate the bulk of the (middle income) jobs, as there lie the most potential savings. So without regulation this trend will continue (it will on the other hand continue even with regulation, I believe).

Sadly, I have no idea, what can be done about that.

jacquesm• 11 years ago

You can extrapolate from the article and your comment into the future: in the future few things that we base our current economy on will still have value.

This means that we're going to have to radically re-think how compensation should work and how our future economy is supposed to work given that almost any job can be automated to some extent. The 'automated away' segment is expanding both upward and downward, that 'middle class' that is disappearing is not so much a middle-class as a middle tier, those jobs that were easiest to automate away because they dealt mostly with information management.

But once you go down that road your interfaces 'up' and 'down' just become 'more complex brains' and 'more capable hands' which in turn are touched by artificial intelligence and better robotics. So that middle tier will get ever wider.

This is an extremely challenging problem.

Jare• 11 years ago

in the future few things that we base our current economy on will still have value

"People" in general is one of those things. We have reached, or are about to reach, the point where it's no longer true that more people = more {wealth, power, progress}.

nofutureagain• 11 years ago

The big difference is that in much of Western Europe, the combination of social security, healthcare, pensions, social housing, eduction costs, public transport etcetera means you don't rapidly fall out of the middle class even if you lose your job.

As a result, there's much less talk about the "decline of the middle class" in Europe. There has been no dramatic change.

olefoo• 11 years ago

Thus the greater likelihood of violent revolution, or violent suppression thereof in the United States.

Given what happened with Occupy the suppression part is well under way.

The head of the NYPD said he needed to be able to deploy a 150 strong unit with machine guns to deal with protests yesterday.

http://nypost.com/2015/01/30/nypd-to-launch-a-beefed-up-coun...

ahomescu12• 11 years ago

The big difference is that in much of Western Europe, the combination of social security, healthcare, pensions, social housing, eduction costs, public transport etcetera means you don't rapidly fall out of the middle class even if you lose your job.

All those things depend heavily on a solid government budget, with solid income from taxing a strong economy. As we're now seeing with Greece, they're not sustainable if the government "coffers" are emptying up or if the economy is weakening.

ExpiredLink• 11 years ago

This is absolutely not the case. Europe and esp. Germany are 'middle-class' societies, governed by (slightly left or slightly right) middle-class parties. In contrast, the US is a plutocracy in which a broader middle class obviously makes no sense. Europe is not heading towards the US model. Parties that don't support middle-class interests have no chance in elections (esp. since the rich cannot drive elections in the same way as in the US).

sebastianconcpt• 11 years ago

I hope this to be true. Also I wonder how the European system has better defence agaisnt the plutocracy trend.

sdoering2• 11 years ago

I would love to have the numbers, supporting your hypothesis, as the would greatly help not only inform my pow, but that of my readers as well, as this would make a nice essay. A lot of times these last some years I read about the German middle class shrinking, mostly with people stepping down into lower income groups.

So I would gladly have numbers, supporting a different point of view, just to counter these reports.

ahomescu12• 11 years ago

It is economically speaking rational, to automate the bulk of the (middle income) jobs, as there lie the most potential savings. So without regulation this trend will continue (it will on the other hand continue even with regulation, I believe).

Is it automation, or is it more competition from other humans? In 50 years, the population of the US almost doubled. In addition, many workers (in most countries, not just the US) now have to compete globally (indirectly, if not directly) with equivalent people from other countries with lower standards of living. Both these phenomena can have negative effects on employment and salaries, IMHO.

jokoon• 11 years ago

Sadly, I have no idea, what can be done about that.

Make way to increase the mass of higher education. Diversify education, lower standards and increase the number of graduates, and increase or create new highest standards. Make education less monolithic.

To put it more simply, just increase the number of students. Expect to have students as old as 30. Diversify the means people educate themselves, it can also happen inside of a company, it doesn't necessarily have to happen in a school. Many people can learn by themselves if they're encouraged to do so. Education doesn't have to be expensive. Maybe regulating education to have more competition between schools might be an idea ?

Education is long term, but I don't see any other way. That's how society gets better. It's either that or more talks about basic income or more taxes on the 1% or the 0.1%.

nostrademons• 11 years ago

I think this will actually have the opposite effect that you're looking for. If you dramatically increase the supply of educated workers, the financial returns of getting that education go way down, for each individual worker. It may be a good thing for society and help us achieve a lot more collectively, but it's not a good thing for the worker. You'll end up with all the wealth pooling at the people who own the companies who employ these workers - much like now, but worse.

To increase wages of middle-class workers, you need to increase the demand for middle-class jobs relative to the supply of workers available. There are three main ways of doing that:

1) Increase demand. Create many more companies, which will force them to compete for talent and raise wages or be left without a labor force. YC and other accelerators have been good for that, and you see what results in San Francisco (although engineer salaries are arguably artificially depressed at the moment because companies form a cartel on wages and nobody has yet defected to try and corner the market).

2.) Decrease supply. Take some workers out of the labor force, either through converting them into employers through entrepreneurship, encouraging families, legislating a shorter work-week, or discouraging education. Note that this also will reduce output, which is a tough sell in a global world.

3.) Join multiple independent workers into one firm. This is basically what labor unions are about, surrendering your autonomy as a free economic agent so that everyone has better bargaining power.

Productivity gains, when spread across a whole class of people, never end up being captured financially by the group they most apply to. All the surplus is competed away, and the people who most benefit are the complements, those goods that everyone in the group depends upon. That's why increasing rates of college attendance - and they have been increasing, dramatically, at least in the U.S. - have resulted mostly in rising tuition and lowered wages.

jusmus883• 11 years ago

Gosh, if only we had some context instead of trying to push a populist narrative. Oh wait.

http://1.bp.blogspot.com/-q83NyGTLock/UekhmnoX4tI/AAAAAAAABc...

r00fus• 11 years ago

A witty saying proves nothing.

That dicing of all incomes into three brackets including the ridiculous $75k+ bracket (for families!) just shows how you can hide truth with graphs.

jusmus883• 11 years ago

A graph completely debunks the populist theory, yet you continue to push the narrative that the middle class is "falling out" instead of...you know...getting richer?

Thanks for the downvote because statistical facts on income apparently aren't your cup of tea.

zaroth7• 11 years ago

This is a similar chart which reads quite differently...

http://www.advisorperspectives.com/dshort/charts/census/hous...

Also, I think you would be better linking here, which has several versions with differnt groupings (per @r00fus' point) as well as the full discussion behind it:

http://www.aei.org/publication/census-data-on-income-distrib...

It's interesing data, but also missing the last 5 years which are crucial as this is a recent phenomenon. The 3rd chart in the series I think best shows what economists are calling the "lost decade" where we stopped making real progress in upward mobility. Add another 5 years onto those series and I think you would see we are going backwards now.

Edit: Shouldn't the top graph in my link be the same as your link? Now I'm doubting these graphs are even 'correct' (methodology aside)

jusmus883• 11 years ago

How does that graph read differently and the captions are from what sources exactly?

mrow84• 11 years ago

The difference between the graphs are that the one linked by jusmus88 is illustrating the distribution of incomes of "families", whereas all three in the article you linked are for the distribution of incomes of "households". These are two different ways of analysing the issue that give different answers, and the differences are discussed in the article.

edit: Just to be clear, I'm not making any positive or negative statements about the article, I just wanted to help you work out what it was you had missed, and I think what I described is it.

wsc981• 11 years ago

I've taken a liking to James Altucher's post on LinkedIn where he also explained why the middle class is dying:

https://www.linkedin.com/pulse/20140407131300-5858595-10-rea...

d4nt3• 11 years ago

I have a theory that the classification of working class, middle class and upper class will disappear as we go through the 21 century. They will be replaced with two types of job:

1. Jobs were you design things (code, graphics, marketing campaigns, franchise models, sales scripts, hedged trades, screenplays, new business models, retail store layouts, art, fashion etc) 2. Jobs were you follow basic instructions (flipping burgers, voice-over artists, uber drivers, sales, retail manager, factory line worker, tax accountants etc)

The first category is a subset of the current middle class, but it's much smaller.

Everyone in the second category is in for a rough ride. They will be constantly competing with machines, algorithms and millions of other people who can all follow the same manual that they have. Even jobs like sales where you'd think there has to be a human involved will be gradually eroded. Human intuition will increasingly be replaced by scoring algorithms and CRM reports. Their persistence in following up with people will be replaced by lifecycle emails, tracking algorithms and chatbots. And ever more transactions will be pushed online anyway.

I also believe that we're at the point of saturating our hierarchy of needs. Some people will try to monetise things like love, acceptance and respect of others (I can already buy a Facebook girlfriend on Fiverr). But I think this will be largely un-monetisable. Meaning we're in for mass unemployment. This is not necessarily a bad thing though, so long as we drop the stigma. People can be kept warm, dry, well fed and entertained with games and box sets, with relatively little cost.

mytochar2• 11 years ago

Feel free to tell voice-over artists and other actors that their jobs are following basic instructions. Same with sales, managers and tax accountants.

d4nt3• 11 years ago

So are some aren't. I can buy a voice over on fiverr, I can send them a script and a few notes and get back an MP3 within 24 hours. Over the next 50 years these people are at risk of loosing their jobs to computer synthesised voices.

If all Starbucks outlets look the same, sell the same stuff and use the same process, I'd say the manager is largely just following the manual.

As for taxes, mine are already prepared by a computer then just checked over by a human. That's not to say there aren't also high end accountants designing company structures and doing financial planning.

vacri• 11 years ago

Tradespeople don't really design things, but neither do they just follow basic instructions.

d4nt3• 11 years ago

I agree, some trades people will design solutions to problems, some people will just turn up and screw in pre-assembled units. The existing category will split into two.

tomjen3• 11 years ago

Tradespeople are (economically speaking) substitute goods for buying a new good factory made. You can hire a guy to repair your washer or buy a new one.

In the future it will be even cheaper to buy new so there will be less need for repairing or custom work. As for the rest - well computers can drive, why shouldn't they be able to help your wiring your house? Or why shouldn't a single electrician (probably in India) be able to help 10 non-electricians with HoloLens wire a house?

Spooky23• 11 years ago

Not really.

There's a difference between what a cabinetmaker does and assembling IKEA furniture.

q2• 11 years ago

This is happening in Asia also. A question arise as to why we work and how fast should we work? In the absence of technology, many things (e.g: ability to write this comment) are not possible. But technology is subsuming many activities where people earn just sufficient amount for the peaceful life of their families without bothering about loss of jobs or what position his country stands in the GDP/productivity rankings ...etc.

Economic press has created a race among leaderships of nations on who is developed(advanced) i.e. praiseworthy and who is not and many organizations started preaching ways to improve productivity as if productivity only is the ultimate goal of human life. Political leaders cannot dare to advocate alternatives because that is suicidal for them, their countries ...etc.

I think, technology's effect on human life is like inverted bathtub curve i.e. technology advancement to certain level is beneficial to society but beyond that we enter region where costs/losses outweigh benefits if we consider entire society. No doubt, there will be winners any time but as a whole society loses and inequality may rise causing law and order issues and impacting even winners indirectly. In that sense, technology is like level of water in river and beyond certain level, it is not good for humanity.

World is highly decentralized and innovators or cultures who tasted success in innovation won't agree that progress in certain technologies need to be stopped or efforts need to be directed towards other required activities. So technology progress always happen and jobs also gets destroyed as collateral damage.

delackner• 11 years ago

Political leaders cannot advocate alternatives like a guaranteed income for everyone, only so long as the people fail to demand such measures.

The history of technology is a long progression of jobs that we don't have to do anymore, freeing us up to both achieve more complicated tasks, and to require fewer hours of human energy to achieve a certain level of pleasant life for everyone.

McDonalds cook, taxi driver, self driver, brick layer, so many jobs today are just on the edge of being unnecessary, and that is a great thing. Those people would be much happier, and society as a whole much safer, if we just gave all these people the money they need to live, and simply ask that they contribute a little civic participation (talk to some old people, supervise children, etc).

zaroth7• 11 years ago

Those people would be much happier, and society as a whole much safer, if we just gave all these people the money they need to live, and simply ask...

The money they need to live? So... from cradle to grave "these people" should simply be given all the food, clothing, shelter, education, entertainment, transportation, etc. that they need and no need to earn any of it?

I assume the plan is to confiscate the money from the other people, the ones that worked for about a century investing their money into developing the technology, processes, and software to bring that level of AI into the world. Pour money into the bottom, it's spent through the system, confiscate it at the top, rinse, repeat?

This doesn't work because it turns out if you can't actually keep the money you earn, you tend not to bother earning it.

binarysolo• 11 years ago

So, takeaway:

-Most jobs are computer-solvable, given enough time and resources.

-From a cost-benefit standpoint, people have strong incentives for automating higher-paying jobs than lower.

-People automating work and people allocating funds to automate said work will reap rewards.

-We as a whole really need to think about a world where a majority of people don't work and figure out how society works and maintains stability given those constraints. (Basic income, etc.)

-For those who haven't settled on what they want yet, they should prolly find work in something that's hard to solve by a robot (that also hopefully provides meaning and sustenance).

machinebirth• 11 years ago

I see these articles a lot. They often present similar data and confirm the very long term trend. Without exception, none of the articles ever mention that humans without jobs forever, will simply die out. Humans without means to sustain themselves will simply die out. That is all. It could be different but it is not. This is where we are. And it is natural. Our parents and their parents died before us as we rose to power. Sure dying out and dying of old age aren't necessarily the same but passing your genetic code on is passing your genetic code on whether it is through a machine or a human. Humans are still much better at reproducing our code than machines but not for long. When this line is crossed the discussion will not be about dying middle classes but about massive human population loss through famine and wars. It's inevitable because no one simply gives their power away without dying. This applies to your parents. And their parents. Get ready to die and don't be a wimp about it. Your parents weren't. And neither were their parents.

dpweb• 11 years ago

This is hyperbole. Yes, there has been some movement low 31-34, middle 45-43, high 25-22, since 2000. But also consider that 2000 was at the height of a bubble where people were artifically wealthy. I wouldn't call a couple of percentage points "killing the middle class".

Also, consider the labor participation rate. At a 36 year low. Less people are working. http://data.bls.gov/timeseries/LNS11300000

Without getting into the whole political argument about whether people should be paid by the government when they do not work, or to the extent robots or cold hearted business barons are killing jobs - or - whether these people can't work or choose not to because they can get by on govt. dole (or working friends/family) - less people working will mean less income.

The survival of middle income families is a very real concern, but I don't find the click bait headlines and exaggeration of what's happening particularly helpful. We have too many areas in American life where instead of taking a sober look at the problem, we stir people up by appealing to their base fears and create narratives to scare people.

fsloth• 11 years ago

Once again, time to suggest Thomas Pikettys "Capital in the 21st century" as highly astute commentary on this.

forrestthewoods• 11 years ago

So, uh, looking at those charts.... good? When you see low, middle, and high it's pretty clear that most of those loses are moving up to the high class. In fact the high class has grown by as much as the middle class shrunk and then some!

The issue doesn't seem to be that people are falling out of the middle class. The real issue looks like, to me, that we're successfully graduating people from middle to high but not from low to middle. The low class has shrunk a teeny bit but is basically flat.

If instead low shrunk, middle stayed flat, and high grew that's be pretty great. It'd mean everyone is moving up.

At least that's whatmy interpretation is. What do y'all think?

georgeecollins• 11 years ago

From the article: "Until 2000, the reason was primarily because more Americans moved up the income ladder. But since then, the reason has shifted: There is a greater share of households on the lower rungs of the economic ladder."

The graphs are 1967-2014. If you look closely you can see that the "high" group goes up until 2000, but not after. That is the point they are trying to make.

The U.S. economy is killing off the middle class

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