Is the middle class shrinking?

Is the middle class shrinking? – polarization of employment

Neal H. Rosenthal

Is the Middle Class Shrinking? Recent articles predicting a decline of middle-income earners have stirred public concern. Some contend that such earners are declining as a proportion of the American work force because more of the new jobs are at the top and bottom of the earnings structure. They warn that this trend could lead to political and social unrest stemming from a two-tiered society, fewer advancement opportunities for those on the lower rungs of the earnings ladder, and even economic disaster as the great purchasing power engine of the middle class loses steam.

Proponents of the “declining middle” thesis suggest that changes in the occupational structure of employment or in the relative wages among occupations will cause a decline in the middle class. They point to four changes that are taking place:

* The decline in employment in the so-called smokestack industries that have a large number of production workers who, according to most proponents, exemplify workers in the middle of the earnings spectrum.

* The rapid growth of high-tech industries that some argue have a bipolar occupational structure.

* The large number of job openings and large numerical growth in low-paying occupations indicated by the BLS industry and occupational projections.

* The shifting industrial structure of the United States from goods-producing industries that, according to the arguments, have a large proportion of middle-income workers to service-producing industries, which have a large proportion of low-income workers.

How Is the Occupational Structure of the Economy Changing?

Changes in the occupational structure refer to the shift of people out of some occupations and into others, such as the movement from farm work to factory work during the Industrial Revolution. One way to test whether or not the middle class is declining, therefore, is to look at changes in the proportion of people in various occupations. One can ask such questions as the following:

* Are occupations in which the usual wage is now in the middle of the earnings spectrum smaller on average than these same occupations were a few years ago?

* Are occupations now in the middle of the earnings spectrum smaller on average than the occupations that were in the middle of the earnings spectrum a few years ago?

* Have earnings at the top risen much faster than earnings at the middle and bottom?

These questions can be answered by data from the Current Population Survey, which provides information on the earnings and employment of wage and salary workers. For the years 1973 and 1982, comparative data are available for 416 occupations. We can sort these occupations into thirds by earnings of full-time workers and than compare employment in each third over time.

In 1982, 33.4 percent of the workers were in the middle third of occupations. In 1973, workers in these same occupations (without regard to where the occupation would have fallen in the earnings spectrum that year) represented 34 percent of employment, indicating a small decline. The loss did not result in higher employment in the lower third of occupations, however, for the proportion of workers in these occupations also declined, from 39.6 to 37.6 percent. The proportion of workers in the top third increased from 26.3 to 29 percent. From this analysis, we can conclude that changes in occupational structure alone from 1973 to 1982, whether caused by technological change, the shift from goods- to service-producing industries, or other factors, do not support the notion of polarization. The occupations in which the usual wage is in the middle of earnings spectrum are not significantly smaller in terms of percentage of the labor force employed than these same occupations were in 1982.

A similar analysis can answer the second question. In 1973, occupations in which the usual wage was in the middle third of the earnings spectrum accounted for 28.9 percent of the workers. As already noted, occupations in the middle third accounted for 33.4 percent of the workers in 1982. On average, therefore, the middle-range occupations accounted for a larger percentage of the labor force than they did in 1973. The proportion of workers employed in occupations at the top third of the earnings spectrum also increased during the period, from 27.7 to 29 percent. The proportion of workers in occupations in the bottom third decreased from 43.4 to 37.6 percent. These calculations, therefore, do not show a trend toward polarization. Instead, they indicate a shift of workers from the low to the middle and high earnings levels, with the middle having the largest increase. Thus, changes in occupational structure, far from leading to polarization, have recently moved workers up the earnings distribution ladder, according to this analysis.

Despite these changes in occupational structure, polarization could still occur if earnings at the top increased a great deal faster than those at the bottom. The effect of such a change would be to lessen the difference between the middle and the bottom while widening the gap between the middle and the top.

Once again, the data do not support an argument for increasing polarization. The following tabulation compares the average weekly earnings in 1973 with earnings in 1982 for the three groups of occupations:

Although the increase was largest in the top third, the earnings of the middle and bottom thirds rose enough so that polarization did not occur.

What Changes Are Occurring?

The four specific changes that proponents of the declining middle point to can each be examined separately. The decline of smokestack and goods-producing industries, the growth of high-tech and service-producing industries, and the relative rate of growth for low-paying and high-paying occupations are all subject to discussion. In general, two separate questions must be asked: First, does the phenomenon really exist; and second, is it significant in terms of total employment?

Proponents of the declining middle argue that the long-term decline of some of the major so-called smokestack industries–automobile manufacturing, blast furnaces and basic steel products, and iron and steel foundries–is a major cause of polarization because these industries pay relatively high wages. Average hourly earnings of production workers in each of these three industries are well above the average for production or nonsupervisory workers in all private nonagricultural establishments. These industries also have a higher than average proportion of production workers. Thus, if it is assumed that production workers in these industries exemplify middle-income earners and that those displaced from these industries end up in low-wage jobs or become unemployed, the decline of employment in these three industries would tend to cause income polarization.

These industries do demonstrate declining trends in employment. Employment peaked in the mid-1960’s in blast furnaces and basic steel products, and in the mid-1970’s in iron and steel foundries. Automobile manufacturing employment peaked in 1978. However, the effect of the employment decline in smokestack industries on the overall economy is not significant. Had no decline occurred at all between 1973 and 1982, total employment in the country would have been only half a percentage point higher. Even had all the displaced workers been in the middle third of the earnings structure, the overall distribution of workers by earnings would not have been significantly different.

Those who argue that the middle class is declining sometimes point to the rapid growth of high-tech industries and state that the work force in these industries has a large proportion of people at the top and the bottom, with few in the middle.

This is a difficult thesis to test because there is little agreement as to which industries are high tech. For example, based on its proportion of engineers and other technologically oriented workers, automobile manufacturing is high tech. According to a more restrictive definition based on the ratio of research and development expenditures to net sales, less than 3 percent of the labor force is in high-tech industries–too small a portion to have much effect. A third definition would classify any industry as high tech if both its proportion of technologically oriented workers and its ratio of research expenditures to sales was at least as high as the average for all manufacturing industries.

Fewer than 30 industries, employing somewhat more than 6 percent of the labor force, fit the last definition. Analysis of their salary structure does not indicate that they have a bipolar work force, however. These industries do have a higher than average proportion of highly paid workers than manufacturing as a whole, but the proportion of employment accounted for by low-paid clerical and service workers is below that for all industries. Thus, the growth in high-tech industries can only contribute significantly to polarization if production workers, who make up the largest proportion of workers in these industries, are low paid. They are not. Nearly all of the production workers in these industries have average hourly earnings above those for production workers in manufacturing generally or for production and nonsupervisory workers throughout the economy.

Building custodian leads the list of occupations that will account for the most job openings between 1982 and 1995, according to the BLS’s latest projections. This and many other occupations on the list are perceived as low paying. These projections are often pointed to as indicating that the middle class will decline while workers in low-paid jobs increase in number. Focusing on these occupations is misleading, however, because, while they will generate many openings, other low-paying occupations will decline. And those that are growing are generally not growing as fast as the labor force as a whole. In other words, the proportion of workers in low-paying jobs generally is declining no matter what is happening to particular occupations.

A last point made by proponents of the theory of the declining middle is that the distribution of industry employment has clearly shifted from the goods-producing to the service-producing industries. Such a trend would lead to polarization if the service-producing industries generally had a bipolar work force.

Analysts have found evidence of such a salary structure and have further concluded that employment of middle income earners declined between 1960 and the mid-1970’s. However, the analysis for the 1973-82 period presented earlier in this article indicates that if a tendency toward polarization was evident in the 1960’s, it seems to have been reversed since the mid-1970’s.

Is the Middle Class Declining?

Many factors–not all of which can be quantified–affect the earnings of workers. The analysis of some of these factors, presented in this article, indicates that polarization did not occur over the 1973-82 period. Also, given BLS projections of employment by occupation, polarization is not likely to occur between 1982 and 1995.

COPYRIGHT 1985 U.S. Government Printing Office

COPYRIGHT 2004 Gale Group