• by Jack Loechner , Staff Writer @mp_research, January 5, 2016

According to a new Pew Research Center analysis of government data, after more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point.

Over the same period, the nation’s aggregate household income has substantially shifted from middle-income to upper-income households, driven by the growing size of the upper-income tier and more rapid gains in income at the top, says the report. 49% of U.S. aggregate income went to upper-income households in 2014, up from 29% in 1970. While the share accruing to middle-income households was 43% in 2014, down substantially from 62% in 1970, says the report.

And middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.

Meanwhile, the far edges of the income spectrum have shown the most growth. In 2015, 20% of American adults were in the lowest-income tier, up from 16% in 1971. On the opposite side, 9% are in the highest-income tier, more than double the 4% share in 1971.

The income it takes to be middle income varies by household size, with smaller households requiring less to support the same lifestyle as larger households. “Middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three. Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971, says the report.

The news regarding the American middle class is not all bad, says the report. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970.

The terms “middle income” and “middle class” are often used interchangeably, says the report. This is especially true among economists who typically define the middle class in terms of income or consumption. But being middle class can connote more than income, be it a college education, white-collar work, economic security, owning a home, or having certain social and political values.

The hollowing of the American middle class has proceeded steadily for more than four decades. Since 1971, each decade has ended with a smaller share of adults living in middle-income households than at the beginning of the decade, and no single decade stands out as having triggered or hastened the decline in the middle.

The Great Recession of 2007-09, which caused the latest downturn in incomes, had an even greater impact on the wealth (assets minus debts) of families. The losses were so large that only upper-income families realized notable gains in wealth over the span of 30 years from 1983 to 2013.

The disparate trends in the wealth of middle-income and upper-income families are due to the fact that housing assumes a greater role in the portfolios of middle-income families. The crash in the housing market that preceded the Great Recession was more severe and of longer duration than the turmoil in the stock market, says the report.

The biggest winners since 1971 are people 65 and older. This age group was the only one that had a smaller share in the lower-income tier in 2015 than in 1971. Not coincidentally, the poverty rate among people 65 and older fell from 24.6% in 1970 to 10% in 2014. The report says that rising Social Security benefits have played a key role in improving the economic status of older adults.

Among racial and ethnic groups, blacks and whites came out winners, but Hispanics slipped down the ladder. Although blacks advanced in income status, they are still more likely to be lower income and less likely to be upper income than whites or adults overall. For Hispanics, the overall loss in income status reflects the rising share of lower-earning immigrants in the adult population, from 29% in 1970 to 49% in 2015, concludes the report.

For more detailed charts and the complete Pew report, please visit here.