Summary
In our Aug. 3 article, “Kerry’s Dubious Economics,” we said Kerry based his claim that “our great middle class is shrinking” on some pretty stale numbers. We said his statement “may well be untrue” because it was based on 2002 figures and didn’t account for recent economic growth. Now fresh numbers are available — and Kerry’s statement is looking a lot better.
Kerry’s other economic statements remain at least as dubious as we reported. Recent figures show inflation-adjusted hourly earnings actually went up in July just as Kerry was announcing that “wages are falling,” for example.
However, Kerry’s description of a declining middle class is supported by new Census Bureau figures showing median household income failed to grow in 2003. And a look at income-distribution tables shows the decline that took place in middle-income households in 2001 and 2002, which we previously reported, may well have continued in 2003.
Analysis
On Aug. 26 the Census Bureau released its annual survey of income in the US. These more up-to-date figures show that Kerry may well have been correct when he said the middle class is shrinking, using present tense.
There’s no standard definition of “middle class,” so we looked at households with pre-tax income of between $25,000 and $75,000 — a group occupying roughly the middle half of the Census income distribution tables. As we noted before, that group grew smaller during the economic recession of 2001 and the initially slow recovery of 2002. Now the new Census figures indicate it continued to decline in 2003, and while this time some of the middle group were moving up , a larger portion were moving down.
Moving on Down
The table shown here is updated to reflect the latest Census figures, and shows both the one-year change for 2003, and also the three-year change from 2000 to 2003 (covering the period since Bush took office.) The income figures are adjusted for inflation, and shown in 2003 dollars.
Since Bush took office, the middle-income group has declined by 1.2 percentage points , and now constitutes less than 45% of all households.
At the same time, households with less than $25,000 in income have grown by 1.5 percentage points, and now make up 29% of all households. So a large number of households have slipped out of the middle group and into the lower-income range over the past three years.
Furthermore, that process did not stop in 2003 despite the resumption of job growth in September and 4.4% growth in the economy as measured by Gross Domestic Product. The middle-income group lost 0.4 percentage points in 2003.
The upper-income group — those with income over $75,000 a year — has also suffered since Bush took office, declining by 0.4 percentage points over three years. However, upper-income households bounced back a bit last year, by two-tenths of a percentage point, and now are back at just over 26% of all households.
So by this measure, the “middle class” continued to shrink in 2003 , and while some “middle class” households moved to the upper-income group, a larger proportion moved down.
(Note: These figures are subject to some rounding error that could make any one of them off by a tenth of a percentage point or so.)
Shrunken, Stagnant Income
Another indicator: the Census Bureau reported that median household income declined by $63 from 2002 to 2003 , to $43,318. “Median” means that half of all households had more income than that, and half less. Census officials characterized the median income figure as “unchanged” in 2003 because the decline was so small as to be well within the margin of error.
But even so, median income has declined by $1,535 since Bush took office , or 3.4 percent. And while the decline leveled off last year and may even be climbing again in 2004, most households are clearly worse off economically now than they were when the President was sworn in.
Falling Into Poverty
Another indication that the middle class continued to shrink in 2003 is the increase in the number and percentage of persons living in poverty. According to the Census Bureau, the number of people living below the official poverty line grew by 1.3 million in 2003, to 35.9 million. That’s nearly 4.3 million more poor persons than when Bush took office , an increase of nearly 14%.
Is It Still Shrinking?
We of course can’t say what the Census Bureau figures will say next year about what is happening to income and poverty rates in 2004. We do know that employment has been growing all year, so more people have jobs. Average wages are rising, too. But prices have been rising even faster — especially for food, health care and fuel.
We also don’t know what happened to after-tax income in 2003, because the Census Bureau was unable to complete its annual release of “alternative measures” of income in time for release with the poverty and household income figures. The 2003 figures might look better once the Bush tax cuts are factored in and take-home pay is considered. On the other hand, we do know that another 1 million persons were without health insurance in 2003. Since Bush took office, the number without health insurance has grown by 5.2 million, to 45 million.
Still Dubious
Some of Kerry’s other claims remain as dubious as before, or even more so.
Kerry’s statement that “wages are falling” turns out to be untrue for the month in which he uttered it. On Aug. 17 the Bureau of Labor Statistics reported that average weekly earnings for rank-and-file production workers in the private sector rose in July even after adjusting for inflation. The increase was 0.7%.
This table — updated from the one we posted in our original article — shows that wages as measured by the average hourly earnings of rank-and-file production workers have grown 10% since Bush took office, and 1.9% in the past year alone.
It is true that over the past year those hourly earnings have not kept pace with inflation, so “real” wages (adjusted for higher prices) have indeed fallen over the past 12 months. In that sense Kerry was correct.
However, the 1.4% decrease that we originally reported has now been reduced to 1% because of the July improvement. And since Bush took office, inflation-adjusted hourly wages are up 2.5% despite the drop in the past year. So whether wages are falling or rising depends on what time period is chosen.
Wages Up But Income Down?
A final note: Readers may wonder how household incomes can be down 3.4% under Bush if wages are up 2.5%. That seems contradictory, but it isn’t. The wage figures (hourly earnings) cover only about 80% of the private-sector workforce, excluding supervisors, managers and all government employees, self-employed persons and business owners. And even more importantly, the Census figures on household income include not only wages but income from many other sources, including interest and dividends, bonuses, and earnings from self-employment and owner-operated businesses.
Sources
DeNavas-Walt, Carmen, Bernadette D. Proctor, and Robert J. Mills, U.S. Census Bureau, “Current Population Reports, P60-226, Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S. Government Printing Office, Washington, DC 26 Aug 2004.
Bureau of Labor Statistics, “Real Earnings in July 2004,” news release 17 Aug 2004.