The shrinking middle class: myth or reality? – Free Online Library Essay

Public interest and concern has been stirred by recent articles that
presage a decline of middle income earners. Those who support this view
contend that such earners are declining as a proportion of the U.S. work
force because more of the new jobs are at the top and bottom of the
earning 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 range of the earnings ladder, and
even economic disaster as the great purchasing power engine of the
middle class loses steam.



Discussions of the declining proportion of middle income earners
can focus on changes in the distribution of earnings of individuals or
changes in the distribution of earnings of families. Changes in the
distribution of earnings of individuals may be caused by changes in the
occupational structure of the economy that reflect changes in industrial
structure and technology. In addition, changes in the distribution of
earnings within each occupation and changes in relative earnings among
occupations can affect the distribution of earnings of individuals.
Changes in the distribution of earnings of families are affected not
only by these same factors but also by changes in family structure. For
example, increasing numbers of dual earning families can lead to an
increase in the proportion of families with high earnings and increasing
numbers of single person families can lead to an increase in the
proportion of families with low income.

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This article focuses primarily on how changes in occupational
structure affect the distribution of earnings of individuals. It also
considers the contribution of changes to the distribution of earnings of
individuals caused by changes in the distribution of earnings by
occuption over the 1973-82 period.



Essential points in discussion



Proponents of the declining middle thesis suggest that a variety of
factors are causing a decline in the proportion of our work force in the
middle income levels. These factors can be categorized as affecting
either the occupational structure of employment or relative wages among
occupations. The more significant of these concern the occupational
structure of employment: (1) the decline of 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; (2) the rapid growth of high tech industries that
some argue have a bipolar occupational structure; (3) the large number
of job openings and large numerical growth in low paying occupations
indicated by the BLS industry and occupational projections; and (4) 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 that are
considered to have many high and low income earners with relatively few
in the middle.



The economic structure of the United States, however, is very
complex and many factors, in addition to those cited above, affect the
earnings distribution of American workers. Not all of these factors
will cause bipolarization of earnings. Some will decrease the number of
low income workers and increase middle income workers and work against
bipolarization. Actual changes in the earnings distribution of American
workers are determined by the combined effect of many factors.



The past



Data from the Current Population Survey (CPS) on usual weekly
earnings and on employment of full-time wage and salary workers by
detailed occupation for 1973 and 1982 were used to examine the merits of
the declining middle income earner thesis. The first analysis
identifies the effect of changes in occupational structure on the
distribution of employment of full-time workers in three income groups:
low, middle, and high. The second analysis illustrates the combined
effect of changes in occupational structure and changes in relative
earnings among occupations on the earnings distribution of full-time
workers over the 1973-82 period. A third analysis is identical to the
first, but includes part-Time as well as full-time workers.


The 1982 CPS provided data on usual weekly earnings of full-time
wage and salary workers for 416 detailed occupations. To test the
effect of changes in occupational structure on the distribution of
workers into low, middle, and high earnings groups between 1973 and
1982, I (1) arrayed the 416 occupations in 1982 by earnings and arranged
them into thirds (bottom, middle, or top), with each third containing
the same number of occupations; (2) summed the number of workers in the
occupations in each third and calculated a percent distribution of the
employment; and (3) arrayed employment in 1973 for each occupation in
the same order as in 1982, and calculated the 1973 percent distribution
for each third. Consequently, an occupation was in the same third in
1973 as it was in 1982.



If the middle income earners are declining, the proportion of total
employment in the middle third would show a decline between 1973 and
1982, and the bottom and top thirds, an increase. The following
tabulation shows the distribution of employment in 1973 and 1982 by
usual median weekly earnings in 1982:



The top third increased the bottom decreased, and the middle
decreased modestly. 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
bipolarization.



As indicated, changes in wages levels also effect the earnings
distribution of workers. To illustrate the combined effect of changes
in relative wages and in occupattional structure on the earnings
distribution of workers over the 1973-82 period, I (1) ranked
occupations in the 1973 CPS into thirds based on 1973 earnings; (2)
summed employment in each of the thirds and calculated a percent
distribution of employment; and (3) compared the resulting distribution
with the 1982 distribution of employment in each of the three earnings
groups. The following tabulation shows the distribution of employment
by usual median weekly earnings in 1973 and 1982:



The data show that the proportion of total employment increased in
the top and middle thirds and decreased in the bottom third. This
calculation does not show a trend toward bipolarization, but instead
indicates a shift of workers from the low to the middle and high
earnings levels, with the middle having the largest increase. Thus,
according to this tabulation, changes in occupational structure, when
combined with changes in relative wages and other factors, moved workers
up the earnings distribution over the 1973-82 period.



However, bipolarization can occur without significant shifts of
employment to the top and bottom thirds of the earnings distribution if
the earnings of those at the top were to increase significantly faster
than those at the bottom. For example, if the earnings distribution of
the bottom third remained at the 1973 level in 1982, but the top third
increased, it could be said that bipolarization occurred even though
there were no significant shifts in employment. However, the data do not
indicate that this occurred. As shown in the following tabulation, the
average of the median earnings for the detailed occupations weighted by
employment increased in each third by about the same amount from 1973 to
1982, although the increase was slightly larger in the top third and
slightly lower in the bottom third than in the middle:



Part-time workers. Including part-time workers in an analysis of
how changes in occupational structure have affected the earnings
distribution of workers is very complex. Part-time workers may work
from 1 to 34 hours per week and, therefore, weekly earnings are probably
affected more by the number of hours worked than by wage rates. In
addition, most part-time workers (about two-thirds in 1982) are on
part-time schedules by choice. Some are students who work only a few
hours a week for spending money, some are older workers drawing
retirement income who work part-time at least in part to provide
diversity, and some are members of a household having a wage earner with
a high income. Thus, the earnings of many part-time workers have little
significance to issues related to concerns about the declining middle,
such as lack of advancement opportunities and social and political
unrest.



Some part-time workers, however, are on part-time schedules for
economic reasons such as slack work rather than by choice. The earnings
of these workers would be higher if they were able to work full time,
and their employment and earnings problems are therefore relevant to the
declining middle issue. Over the 1973-82 period, the proportion of
workers on part-time schedules for economic reasons increased
significantly, from 3.1 percent to 6.5 percent of total employment. A
large part of this increase resulted from the recessionary conditions
prevalent in 1982, but not in 1973. Still, some structural changes in
the economy may also have occurred between 1973 and 1982 which affected
not only the distribution of occupational employment of part-time
workers but also the level of part-time employment. In turn, these
changes could have affected the proportion of workers in the middle
income group.



Because of the complexities of dealing with part-time workers in an
analysis of the decline of middle income earners, only the effect of
part-time workers on changes in occupational distribution from 1973 to
1982 is considered in this article. Issues concerning such factors as
changes in hours worked and in the proportions of those who worked
part-time voluntarily or for economic reasons are not considered.



Therefore, part-time workers were combined with full-time workers.
Total employment (combined part- and full-time employment) for 1973 and
1982 was distributed into the top, middle, and bottom thirds of the
occupational earnings structure, based on median usual weekly earnings
in 1982. Part-time workers were placed in the same third of the
occupational distribution by earnings as full-time workers in the same
occupation. Also, they were given an employment weight equal to a
full-time worker.



Part-time workers are heavily concentrated in occupations in the
bottom third of the earnings structure. Therefore, the inclusion of
part-time workers resulted in a larger proportion of workers in the
bottom third than when only full-time workers were included. The
following tabulation shows the distribution of total employment in 1973
and 1982 by usual weekly earnings in 1982 (part-time workers were
distributed according to the 1982 usual weekly earnings of full-time
wage and salary workers in the same occupation):



The data show that changes in the distribution of total employment
among the top, middle, and bottom thirds of the earnings distribution
between 1973 and 1982 were very similar to the changes that were shown
when only full-time workers were considered. The top third increased,
the bottom third declined, and the middle third declined very slightly
(but not as much as the bottom third).



These results also do not support the notion of bipolarization.
Most importantly, none of the three analyses shows an increase in the
bottom third, which is an important part of the bipolarization
hypothesis. In fact, they all show a decline in the share of employment
in the lowest group.



Data limitations. The data used in the three analyses have some
limitations that should be recognized. These limitations result from
sampling and response errors in the CPS as well as from differences in
data definitions. The data for 1973 include workers who reported they
were self-employed but who had not incorporated their business. These
individuals are not included in the 1982 data. However, the number of
these workers in relatively small and should not significantly affect
the data. Also, the 1973 data reflect only one month, May, whereas the
1982 data are annual averages.



The future



Data on changes in occupational structure and occupational wage
levels for the 1973-82 period do not support the declining middle income
earners thesis. But what about the future? The basic tenets of the
thesis could perhaps be more applicable to the future than to the recent
period of back-to-back recessions.



It is very difficult to forecast the future in terms of
occupational structure and associated earnings by occupation, but some
insights can be gained by looking at the BLS 1982-95 occupational
projections.



The projections are based on the occupational classification system
used in the Occupational Employment Statistics (OES) survey, rather than
on the classification system used in the CPS. Because earnings data are
not collected in the OES survey, a similar analysis could not be
conducted for detailed occupations as was done for the 1973-82 period.
However, CPS and OES data are similar enough to permit analysis of
developments for the standard major occupational groups of workers. The
data indicate the following:



* Workers who typically have a high level of earnings–professional
and technical workers and managers–are projected to increase as a
proportion of total employment.



* Craftworkers, who also have higher than average earnings, but
with slightly more workers in the middle third than in the top third,
also are projected to increase as a proportion of all workers over the
1982-95 period. (See table 1.)



* Among those occupational groups with low earnings, laborers and
farmworkers are projected to decline as a proportion of the total
employment, and service workers and clerical workers are expected to
increase their shares. However, if the four occupational groups with
lower than average earnings (operatives, laborers, service workers, and
farmworkers) are combined, they are projected to decline as a proportion
of total employment.



The projected data are generally consistent with the findings for
the 1973-82 period. Namely, they show an increasing proportion of
employment in higher than average earnings occupations and a declining
proportion in occupations with lower than average earnings, rather than
a trend toward bipolarization.



Specific issues



As noted, the declining middle income earners thesis is based on a
number of widely discussed developments, including the decline of
smokestack industries, the rapid growth of high tech industries, the
large number of openings in low paying occupations, and the shift from
goods- to service-producing industries. However, the extent to which
each of these factors has contributed or can be expected to contribute
to the decline of middle income earners is open to debate. The
following discusses these four factors in terms of their significance to
this phenomenon.



Decline of smokestack industries. Proponents of the declining
middle income thesis argue that the long-term employment 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 bipolarization. These industries do
demonstrate declining trends in employment. Employment peaked in the
mid-1960’s in the blast furnaces and basic steel products industry,
and in the mid-1970’s in iron and steel foundries. Automobile manufacturing employment peaked in 1978 at about 1 million workers, and
most industry analysts do not expect employment to rebound to that level
in the foreseeable future. (Employment trends in these and other
industries are shown in table 2.)



These smokestack industries pay relatively high wages. Average
hourly earnings of production workers in each of the three industries
are well above the average for production or nonsupervisory workers in
all private nonagricultural establishments. (See table 2.) 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 on low wage jobs or become unemployed, the
decline of employment in these three industries would tend to cause
income polarization.



However, the effect of the employment decline in smokestack
industries on the overall economy is not significant. Since 1973 (the
high point of combined employment in automobile manufacturing, blast
furnaces and basic steel products, and iron and steel foundries), there
has been a notable decline in the number of workers in these industries.
But, if the decline had not taken place, total employment in 1983 would
have been only .5 percent higher. Even if all of these workers were in
the middle third of the earnings structure, the overall distribution of
workers by earnings would not be significantly different than it was in
1983 because they would be such a small part of the total.



We can conclude that the decline of smokestack industries is a
factor that could cause bipolarization. However, we cannot conclude
that international competition and technological change, factors that
are largely responsible for the declining employment in the smokestack
industries, cause bipolarization without looking at other industries
which also face the same problems and which also have experienced
employment declines over the past decade–textile, apparel, and leather
products manufacturing. (See table 2.) Because these latter industries
pay relatively low wages, the decline in the number of workers in the
bottom of the earnings scale that resulted from their employment
declines (600,000 from 1973 to 1983) more than offset the decline in the
higher paying smokestack industries.



Growth of high tech industries. An additional argument advanced by
proponents of the declining middle income earners thesis indicates that
the rapid growth of high tech industries contributes to bipolarization
because these industries are characterized by large proportions of high
and low paid workers and few in the middle. If this argument has merit,
these industries would have relatively high proportions of highly paid
professional and managerial workers, and of low paid clerical and
service workers; production workers would have to be relatively low paid
unless there were very few of them in these industries.



In previous studies, the BLS has shown that high tech employment,
under each of three groups of high technology industries, is growing
faster than total employment. However, the analysis also showed that
high tech industries comprise a relatively small proportion of total
employment and total employment growth. BLS defines the three groups of
high tech industries as: group I–industries with a proportion of
technology-oriented workers (engineers, life and physical scientists,
mathematical specialists, engineering and science technicians, and
computer specialists) at least 1.5 times the average for all industries;
group II–industries with a ratio of R&D expenditures to net sales at least twice the average for all industries; and group
III–manufacturing industries with a proportion of technology-oriented
workers equal to or greater than the average for all manufacturing
industries, and a ratio of R&D expenditures to sales close to or
above the average for all industries (two non-manufacturing industries
which provide technical support also are included). The following
tabulation shows the percent of total employment in each of the three
groups of high tech industries in 1972, 1982, and 1995, and the percent
change for 1972-82 and 1982-92:



In 1982, under the broadest definition (group I), high tech
industries only accounted for 13.4 percent of total employment, up from
131. percent in 1972. Under a more narrow definition (group III), high
tech comprised only 6.2



percent of total employment. An even narrower definition (group II),
shows high tech employment accounting for only 2.8 percent of the total.
Group III is probably the definition that would be used by proponents of
the declining middle income earners thesis because the broadest
definition includes, among other industries, automobile manufacturing.



In about half of the high tech industries included in the group III
definition, professional and managerial workers combined accounted for a
higher proportion of total employment than in the economy as a whole,
and very few were significantly below the average. Nearly all of the
high tech industries have a higher proportion of highly paid workers
than manufacturing as a whole. However, the proportion of workers in
these industries, are low paid. But nearly all of the production
workers in these industries have average hourly earnings above average
for production workers in all manufacturing and production or
nonsupervisory workers in all private nonagricultural establishments.
(See talbe 3.) All these factors combined would tend to work against
polarization when the entire economy is considered. Therefore, data on
earnings and on employment growth provide little evidence that high tech
industry growth is contributing to bipolarization. growth are



Job openings in low paying occupations. Another point made by some
proponents of the declining middle income earners thesis is that a
majority of the occupations having the largest number of job openings
and large projected employment growth are on the low end of the earnings
spectrum. (See table 4.) This point is often made using the latest BLS
projections of occupational growth, 1982-95. In these projections, many
of the occupations that are expected to have the largest numerical
employment growth over the 1982-95 period do have low earnings.
However, these factors do not necessarily imply that low paying jobs
will increase their share of employment and cause the proportion of
workers earning low wages to rise.



The BLS data on job openings indicate that most openings are caused
by the need to replace workers rather than by growth in the number of
jobs. This is especially true in low paying occupations that employ
large numbers of young people and women, who may periodically leave the
labor force to attend school or to care for their families. In low
paying jobs there also is significant movement between occupations.
However, despite the large number of openings in these occupations,
there is no indication that the number of workers having low earnings in
increasing because the rate of increase in employment in these jobs is
generally not faster than that for the total economy.



Similarly, in analyzing the composition of employment by occupation
implied by projected growth, the growth rate must be considered in
preference to numerical change. A very large occupation with a growth
rate close to that for all occupations will show large numerical growth
but will not increase as a proportion of total employment. For example,
building custodians are projected to have the largest numerical growth
between 1982-95, but with only an average projected rate of growth, this
occupation is not expected to increase as a proportion of total
employment.



Among the 20 occupations that are projected to grow fastest over
the 1982-95 period, most are in the top third earnings category and most
of the remainder are in the middle third. (See table 5.) However,
looking only at the fastest growing occupations can be misleading. A
comprehensive analysis should include the entire occupational spectrum
(which was done in an earlier section of this article). It is necessary
to use data for all occupations because, individually, the fastest
growing occupations are numerically small and have little effect on
changing the overall distribution of workers by earnings level.



Shift from goods- to service-producing industries. Data on the
changing distribution of industry employment clearly show a shift from
goods-producing to service-producing industries. To support the
conclusion that this trend leads to bipolarization of earnings, the data
would have to show that the distribution of low and high earnings
occupations is concentrated to a greater extent in service-producing
industries than in goods-producing industries.



An analysis of this nature was conducted by Thomas Stanback, Jr.
and Thierry J. Noyelle for 10 major occupational groups in 18 industry
categories. This analysis showed a tendency towards bipolarization that
has been used by many of the other proponents of the declining middle
income earners thesis as a basis for their conclusion.



Stanback and Noyelle applied 1975 earnings data for major
occupational groups to data on employment by major occupational group by
industry for 1975 and 1960. Using constant earnings data, they analyzed how changes in the occupational distribution alone would affect the
distribution of employment by earnings. Their analysis was, therefore,
similar to that presented in this article for the economy as a whole.
However, the Stanback and Noyelle analysis was done at a major
occupational group level, rather than by detailed occupation. Their
analysis showed that employment of middle income earners declined
between 1960 and 1975, and that employment at both the top and bottom of
the earnings scale increased. Their study also showed that growth of
service-producing industries was largely responsible for this trend.
Their analysis does lend considerable support to views that the middle
is declining.



However, there are some concerns about the validity of the
analysis. Data on the occupational employment distribution of
industries used by Stanback and Noyelle for 1960 were from the
industry-occupation matrix developed by BLS based on the occupational
classification used in the 1960 census. Earnings data, however, were
taken from the Survey of Income and Education collected as a supplement
to the CPS in 1975, which used the 1970 census classification. Although
similar to the 1960 census classification, some occupations shifted from
one major group to another and could have affected the analysis.



In addition, employment data in the industry-occupation matrices
include part-time workers. Given that part-time workers are generally
found in low paying occupations and that part-time workers increased
significantly as a proportion of the work force between 1960 and 1975,
these data would tend to show an increase in low paid workers. Also,
1975 was a recession year and thus had a larger proprotion of workers on
part-time schedules for economic reasons than 1960. Finally, because
the calculations were done by major occupational group, the analysis
would not have captured the changing structure among detailed
occupations within each major group. Thus, it is possible that some
structural changes are masked by the broad data used.



Interestingly, a study by Peter Henle and Paul Ryscavage that
measured the tend toward inequality in earnings for a similar period
produced results similar to Stanback and Noyelle. This study, based on
data from the CPS over the 1958–77 period, used a Gini index to measure
the equality of earnings distribution for a number of factors, including
occupations.



In general, the study showed greater inequality over time, but with
considerable slowing of the long-term trend for the 1973-77 period. For
some major occupational groups, however, there is a trend toward greater
equality over time or an uncertain trend. For those showing greater
inequality over time, there was less change later in the period.



The Stanback and Noyelle and Henle and Ryscavage studies both show
comparable results for a period beginning about the early 1960’s to
the mid-1970’s which suggest some bipolarization of earnings.
However, my analysis of occupational trends for the 1973-82 period shows
that the tendency toward bipolarization, if it did exist, seems to have
been reversed since the mid-1970’s.



IS THE MIDDLE DECLINING? Some trends in the industrial and
occupational structure of employment could cause a degree of earnings
bipolarization. However, a multitude of factors have an effect on the
occupational structure of our economy and on the earnings of workers in
specific occupations. Although not all can be quantified, an analyses
of available data indicates that the combined effect of all factors
apparently has not caused bipolarization over the 1973-82 period. Also,
given BLS projections of employment by occupation, bipolarization is not
likely to occur between 1982 and 1995.

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