1. Defining & Measuring the Middle Class
Steven Pressman
Monmouth University and Colorado State University

3. 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

4. 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)

5. 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

6. 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

7. 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

8. 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)

9. 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

10. 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.

11. 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

12. 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

13. US MIDDLE CLASS OVER TIME

14. MIDDLE CLASS, ANGLO-SAXON COUNTRIES

15. MIDDLE CLASS, NORDIC COUNTRIES

16. MIDDLE CLASS, CONTINENTAL EUROPE

17. 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.

18. Thank you for paying attention and putting up with me!!