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Middle Class Squeez

posted Jul 1, 2011, 3:37 PM by Take Back Country   [ updated Jul 5, 2011, 4:18 AM ]
The middle class squeeze is the situation where increases in wages fail to keep up with inflation for middle income earners, while at the same time, the phenomenon fails to have a similar impact on the top wage earners. Persons belonging to the middle class find that inflation in consumer goods and the housing market prevent them from maintaining a middle class lifestyle, making downward mobility a threat to counteract aspirations of upward mobility. In the United States for example, middle class income is declining while many staple products are increasing in price, such as energy, education, housing, and insurance.
One groupsummarizes the middle class squeeze in this way "Being middle class used to mean having a reliable job with fair pay; access to health care; a safe and stable home; the opportunity to provide a good education for one’s children, including a college education; time off work for vacations and major life events; and the security of looking forward to a dignified retirement. But today this standard of living is increasingly precarious. The existing middle class is squeezed and many of those striving to attain the middle-class standard find it persistently out of reach."
As noted by the British historian and journalist Godfrey Hodgson,
"On the basis of such evidence I myself have written that “by all statistical measures . . . the United States, in terms of income and wealth, is the most unequal country in the world. While the average income in the United States is still almost the highest in the world . . . the gap between wealth and poverty is higher than anywhere else, and is growing steadily greater”."

Causes of the Middle Class Squeeze

Income Changes
In a study conducted in 2006 by The United States House of Representatives there were some interesting income findings that show the effects of the middle class squeeze. According to the study, not only is real income decreasing for the middle class, but also the gap between the top wage earners and the middle earners is widening. Between 2000 and 2005 real median household incomes in the United States has declined by 2.5%, falling each of the first four years of the Bush Administration, falling by as much as 2.2% annually. Overall real median income has declined since 2000, by $1,273, from $47,599 in 2000, to $46,326 in 2005. According to the survey, working class families headed by adults younger than 65, have seen even steeper declines. Although they had seen an increase in real median household income from 1995 to 2000 of 9%, since 2000 their income has fallen every year and a total of 5.4%. In actual money terms this correlates to a decrease of $3,000 from $55,284 to $52,287. The other way in which income has an impact on the middle class, is through increases in income disparity. Findings on this issue show that the top 1% of wage earners continue to increase the share of income they bring home, while the middle class wage earner loses purchasing power as his or her wages fail to keep up with inflation. Between 2002 and 2006, the average inflation adjusted income of the top 1% of earners increased by 42%, whereas the bottom 90% only saw an increase of 4.7%.

Changes in the price of Staple Consumer Products

Insurance and Health Care
Insurance and Health care is an important factor regarding the middle class squeeze because increases in these prices can put an added strain on middle income families. This situation is exactly what the House of Representatives survey shows regarding Health care prices. In 2000, workers paid an average of $153 per month for health insurance coverage for their families, however, by 2005 these numbers had increased to $226 per month. The effects of the price change in health care can be seen in many ways regarding the middle class. The number of people who are uninsured has also increased since 2000, with 45.7 million Americans now without health insurance, compared to 38.7 million at the start of the millennium. Also, 18% of middle income Americans, making between 40,000 and 59,999 dollars were without health insurance during 2007 and more than 40% of the 2.4 Million newly uninsured Americans were middle class in 2003.
The rise in prices also causes a harm to working middle class Americans because it makes it more costly for employers to cover their employees, as shown by the fact that in 2007 60% of companies offered their workers health insurance down from 69% in 2000. Also the number of Americans who reported skipping treatment due to its cost has increased from 17% to 24% during the same time period.

Energy Products
Like health care, increases in energy products can put added stress on middle class families. Energy Prices have been rising since 2000 as well, including gasoline, home heating, and other forms of energy. Since 2000 the U.S. has seen a 52% real increase in gasoline prices, a 69% real increase in natural gas prices, a 73% real increase in heating oil costs, a 59% real increase in propane costs, and a 8% real increase in electricity cost. Overall, adjusting for inflation, this results in a cost for American families of $155 more in 2006 then they spent in 2000. Along with these direct cost increase, Americans also face indirect cost associated with higher energy prices, such as higher jet fuel prices, higher gas and diesel prices for commercial airliners, and higher natural gas prices for commercial and industrial users, and assuming these cost are passed on to consumers of these companies, it will cost the average American household $1,150 per year. Taken together these indirect and direct factors cost American middle class families $2,360 more in 2008 than in 2000.

The benefits of higher education is something that clearly correlates to higher income in later life, with findings showing that the average high school graduate earns $31,286, while the average college graduate makes $57,181, and education is often considered the gateway for upward mobility for the middle class. However, because of increases in college education costs, many middle class Americans are missing out on a college education because of high prices, or caused them to leave college with massive amounts of debt, not allowing the middle class to enjoy the full benefits of a college education. Studies show that the average cost of a four year college or university has increased by 76% since 2000, adding to this the middle class faces struggles because of decreasing financial aid. There has been no increase in government Pell grants, while at the same time interest rates for student loans has increased to a 16 year high. These price increases don't just affect middle class Americans trying to get into college, but they also continue to affect those who attain a college education using the high interest rates of student loans. Two out of three college graduates begin their careers with student loan debt, amounting to $19,300 for the median borrower. These debts have a long term impact on middle class Americans, as 25% of Americans who have college debt claim it caused them to delay a medical or dental procedure and 14% report it caused them to delay their marriage.

Home Ownership
Home-ownership is often seen as an arrival to the middle class, but recent trends are making it more difficult to continue to own a home or purchase a home. 1 in 33 American homeowners are projected to lose their homes to foreclosure in the next few years due to sub-prime loans, and more than 40.6 million homes are projected to drop in value. Also homeowners are more frequently having to cash out the equity on their homes to meet basic living expenses, causing homeowners equity to fall, which means American homeowners now own less of their homes than they actually did in the 1970s.

Other Factors

Increases in American Debt
Americans have built up a record $956.9 billion revolving debt as of 2008, that consist mainly in credit card debt that is more than a 70% increase from a decade earlier. With the average middle-class American family carrying more than $2,200 in credit card debt. Also the nations personal savings rate has become negative in 2005 for the first time since the great depression, with the average household spending more than they earned.

Job Security Changes
More than 92% of the 1.6 million Americans who filed for bankruptcy in 2003 were middle class.Along with this, manufacturing jobs have decreased by 22% between 1998 and 2008 largely due to outsourcing of American businesses.

Retirement Security Changes
The squeeze on the middle class is also causing difficulties when it comes to saving money for retirement because of decreased real incomes and increases in consumer prices. In 2007, 1 in 3 American workers said they hadn't saved at all for their retirement and of those who have started saving, more than half claim to have saved less than $25,000. There has also been a shift in employer retirement plans, with a shift from traditional defined benefit pension plans to 401k plans, in which there is no individual guarantee about the amount of retirement income that will be available.