In the recent presidential election, perceptions about the economic condition of the middle class played a role in the minds of many voters. The perception that middle-class incomes have declined substantially is pervasive - but wrong.
In fact, the middle class has made significant economic gains over the last 30 years. According to the U.S. Census Bureau, median household income (half of all households earn more, half less) rose 18 percent, after inflation, from 1976 to 2006. This understates the actual growth.
After correcting for bias in measuring inflation, adjusting for smaller households and estimating government support to lower income households, economist Terry Fitzgerald estimates median household income rose 44 percent to 62 percent from 1976 to 2006. He concludes that while income inequality has increased, significant income gains have also occurred.
In addition, income mobility in the U.S. remains high. Most workers start with low-paying jobs when they are young, then earn more as they gain work force experience, and develop useful job market skills.
A study by the U.S. Treasury found that nearly 60 percent of households with incomes in the bottom 20 percent in 1996 had moved into a higher income category by 2005. More than 40 percent of the households in the middle of the income distribution in 1996 moved up in less than 10 years.
Also, the top earners often experience income declines. Approximately 57 percent of households in the top 1percent of earners in 1996 moved into lower income categories by 2005.
Because of economic mobility and measurement issues, it is difficult to compare the economic status of middle-class households over time. However, upward economic mobility is determined by labor market participation and the development of individual skills valued by employers.
Households with relatively low income often have no one at work. Almost 60 percent of households in the lowest quintile have no labor market participants. But for the top income quintile, more than 75 percent have two or more wage earners. On-the-job experience is the best way to develop valuable market skills.
With the economy in recession, household income will stagnate in the near term. However, once the recovery begins, the same dynamics that generated income growth in the past will kick in and we can expect living standards to rise again.
Robert Krol is a professor of economics at California State University, Northridge. He received his doctorate from Southern Illinois University, Carbondale. He has worked as both an economist and consultant in the public sector.