Defining & Measuring the - PowerPoint Presentation

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Defining & Measuring the Middle Class

Steven Pressman

Monmouth University and Colorado State University

pressman@monmouth.eduSlide2

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MOLLIE ORSHANSKYB.A., Hunter College, 1935, in math & statistics; graduate work at American University in economics & statistics1939, research assistant at US Children’s Bureau, worked on children’s health & nutrition1942, 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

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SOME APPROACHES TO DEFINING THE MIDDLE CLASSPercentage around median incomeMiddle Three Income Quintiles- look at what % of total income they getRobert 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)

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HOW ORSHANSKY MEASURED POVERTYRecognized importance of family sizeUsed food budgets for families of different sizes (first used by DuBois in the US in the late 19th century)Costed out food budgets for familiesDept. of Agriculture surveys found that households spend around 1/3 their income on food, she multiplied food budgets (for each household) by

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.

US poverty rate=#poor households/#households

Thresholds rise every year with inflation (CPI)

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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 ServicesSlide6

PROBLEMS WITH ORSHANSKY MEASUREBased only on money income from work or “market income”Ignores other income (health care benefits)Ignores Taxes on incomeIgnores 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

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POSITIVE ASPECTS OF THE ORSHANSKY DEFINITIONShe 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 solutionRecognized that location mattersRecognized that inflation matters

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WHY THE MIDDLE CLASS MATTERSECONOMIC REASONSTheir income & spending are main determinants of economic growthProductivity growth suffersPOLITICAL REASONSVoting 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)

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WHO IS MIDDLE CLASS- A 5 STEP PROGRAMTake 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

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AN ADDITIONAL PROBLEMDOWNWARD MOBILITYDuring 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.

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LUXEMBOURG INCOME STUDYBegan in 1984Now 48 countries in LIS databaseComparable definition of income & other variablesData centered around particular years, called “Waves”-Wave #1 centered around 1980

-

Wave

#8

centered around

2010

-Wave #9

centered around 2013

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MIDDLE-CLASS INCOME LEVELS (US2013)12

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 DatabaseSlide13

US MIDDLE CLASS OVER TIME13Slide14

MIDDLE CLASS, ANGLO-SAXON COUNTRIES14Slide15

MIDDLE CLASS, NORDIC COUNTRIES15Slide16

MIDDLE CLASS, CONTINENTAL EUROPE16Slide17

MOVING FORWARDWe 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.

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