Defining & Measuring the Middle Class Steven Pressman Monmouth University and Colorado State University pressman@monmouth.edu

MOLLIE ORSHANSKY B.A., Hunter College, 1935, in math & statistics; graduate work at American University in economics & statistics 1939, research assistant at US Children’s Bureau, worked on children’s health & nutrition 1942, statistician for NYC Department of Health 1945, U.S. Department of Agriculture, working on family consumption & living standards. She soon became their Senior Food Economist, collecting & analyzing data on food consumption 1958, Social Security Administration expert on income adequacy Dec. 1962, President Kennedy asked Walter Heller, chair of CEA to get poverty statistics. 1963, developed US definition of poverty 1965, OEO adopted her measure 1969, Bureau of Budget directed all Federal agencies to use this measure to determine eligibility for federal programs

SOME APPROACHES TO DEFINING THE MIDDLE CLASS Percentage around median income Middle Three Income Quintiles- look at what % of total income they get Robert Putnam, Our Kids- households where no parent has a college degree but some education beyond high school Thomas Piketty, Capital in the Twenty-First Century—look at wealth distribution Ask people if they are middle class & use average income of those who say they are middle class (Pew)

HOW ORSHANSKY MEASURED POVERTY Recognized importance of family size Used food budgets for families of different sizes (first used by DuBois in the US in the late 19th century) Costed out food budgets for families Dept. of Agriculture surveys found that households spend around 1/3 their income on food, she multiplied food budgets (for each household) by 3. US poverty rate=#poor households/#households Thresholds rise every year with inflation (CPI) 2015 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA Persons in family/household Poverty guideline 1 $11,770 2 15,930 3 20,090 4 24,250 5 28,410 6 32,570 7 36,730 8 40,890 Note: For families/households with more than 8 persons, add $4,160 for each additional person. Source: 2015 Poverty Guidelines, U.S. Department of Health & Human Services

PROBLEMS WITH ORSHANSKY MEASURE Based only on money income from work or “market income” Ignores other income (health care benefits) Ignores Taxes on income Ignores Government Benefits (Food Stamps, Medicaid, Housing Vouchers, etc.) Says nothing about assets or debt (Pressman & Scott, ROSE, June 2009) What is regarded as necessary changes over time & from place to place 100 years ago, cars, phones, computers, child care, college education and 2 cars to commute to work were not necessary Today, food multiplier 4 or 5 rather than 3. Regional Cost of Living Differences Used “emergency food budget” (result in 75%-80% lower poverty thresholds) rather “low-cost” budget

POSITIVE ASPECTS OF THE ORSHANSKY DEFINITION She went out & found out what was necessary for a household to survive during the year. “Grounded theory” Recognized importance of family size & came up with an empirical solution Recognized that location matters Recognized that inflation matters

WHY THE MIDDLE CLASS MATTERS ECONOMIC REASONS Their income & spending are main determinants of economic growth Productivity growth suffers POLITICAL REASONS Voting increases Aristotle (Politics, Book IV) noted that communities with a large middle class would be dominated by neither the rich nor the poor & will be better run as a result Lipset (1959) Hypothesis- a large middle class penalizes extremists & sustains democracy PSYCHOLOGICAL or HEALTH REASONS Inequality leads to stress and to health problems (Wilkinson & Pickett, 2011)

WHO IS MIDDLE CLASS- A 5 STEP PROGRAM Take median household income for a family of 4 (surveys and estimates of household wealth in 2010 found a middle-class income for a family of four was $68,000+, close to the median for a family of four Find median household disposable income Middle class those 4-member households with disposable income between 67% & 200% of the median (Pew Research Center) For households of other sizes, use the Orshansky adjustments & repeat. % middle class = % all households that are middle class

AN ADDITIONAL PROBLEM DOWNWARD MOBILITY During the Great Recession median household income fell. Households may still be counted as middle class, even after experiencing a 5% drop in disposable income, because the median also dropped.

LUXEMBOURG INCOME STUDY Began in 1984 Now 48 countries in LIS database Comparable definition of income & other variables Data centered around particular years, called “Waves” -Wave #1 centered around 1980 -Wave #8 centered around 2010 -Wave #9 centered around 2013

MIDDLE-CLASS INCOME LEVELS (US2013) HOUSEHOLD SIZE INCOME RANGE (Household Income) 1 $28,569-$85,281 2 $37,140-$110,865 3 $45,710-$136,449 4 $54,281-$162,033 5 $62,852-$187,617 6 $71,422-$213,201 7 $79,993-$238,786 8 $88,564-$264,370 9+ $97,135-$289,954 Source: Luxembourg Income Study Database

US MIDDLE CLASS OVER TIME

MIDDLE CLASS, ANGLO-SAXON COUNTRIES

MIDDLE CLASS, NORDIC COUNTRIES

MIDDLE CLASS, CONTINENTAL EUROPE

MOVING FORWARD We need to control for regional difference in cost of living & expand the number of countries with measures of the middle class. We need to begin to test theories find out what it is that has caused the middle class to shrink in the US & other developed nations. Standard economic explanations (robots and trade) seem to lack empirical support. We need to understand why the middle class did not shrink in some countries (Canada, Italy and Norway) & increased in a few (France). A paper of mine on the case of Italy identifies demographics and the lack of financialization as two key factors.

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