Middle Class Incomes Stagnant? Not at All

Frequently-quoted statistics seem to show that middle class incomes are stagnant at best, falling at worst.  That’s apparently not the case.  In a new study by a Federal Reserve Bank of Minneapolis economist, different estimates are put on a uniform inflation adjustment, and benefits are added in, resulting in the following conclusion:

I’ve established that wages for the median worker went up by 20 percent
between 1975 and 2005, while wages plus benefits increased by around 28
percent. How did the workers above or below the median fare? The wage
figures computed by the EPI, which exclude the substantial growth in
benefits, indicate they did fairly well. The 40th and 60th percentiles
of hourly wage rates rose by 18 percent and 21 percent, respectively.
As indicated in the preceding section, the wage gains are much larger
at higher wage rates.

Large gains at the top end of the wage distribution might seem to be
accompanied by flat wages at the bottom, but that is not the case. Wage
gains at the lower end of the distribution held up fairly well. Wage
growth rates at the 10th and 20th percentiles were only slightly below
the median growth rates, increasing by 17 percent and 18 percent,
respectively. While these data confirm that wage inequality increased
since 1975, they also confirm that a broad swath of middle America
experienced notable hourly wage gains.

Business planning implications: don’t abandon your middle class customers.  Don’t shift down-market too fast.  The middle class is thriving, except for those moving into the upper class.

(Hat tip to Greg Mankiw.)