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Friday, December 3, 2010

The Distribution of Household Income and the Middle Class

Linda Levine
Specialist in Labor Economics

Although not itself a subject of legislation, the shape of the income distribution enters Congress’s decision-making process concerning a number of policy issues (e.g., taxes, means-tested benefits, and social insurance programs). Congress also considers legislation specifically in the name of those in the middle (however defined) of the income distribution who commonly are referred to as the middle class. After briefly analyzing the distribution of household income in 2009, the latest year for which data are available from the Census Bureau, the report attempts to put the term “middle class” into some perspective.

The key points of the report are as follows: 
  • There are a variety of ways to describe the income distribution, but all show that income is concentrated among high-income households. For example, relatively few households can be found in the upper end of the income distribution. Some 2% of the 117,538,000 households with income in 2009 had incomes of $250,000 or more. (The Census Bureau does not disaggregate income within the $250,000- or-more income class.) In addition, a disproportionately large share of total money income accrues to those at the upper end of the distribution. That is to say, in an equal distribution, 5% of households would have an equivalent share of aggregate income. In 2009, the top 5% of households accounted for 21.7% of total money income, and the top 20% of households (which includes the top 5%) had 50.3% of all money income.
  • There is no official government definition of who belongs to the middle class, perhaps because the term means different things to different people. The middle class may refer to a group with a common point of view or to those having similar incomes, for example. The focus in this report is on income.
  • It appears that both absolute and relative income may determine who are members of the middle class. Based on combining Census income data for 2009 with results from surveys that asked people to identify their social class, the middle class seems to refer to households with incomes in 2009 that ranged upward from $38,551 (the bottom of the middle quintile of households) and extended into the top 20% of households (those with income of $101,000 or more), perhaps up to households with about $250,000 in income.
  • The middle class also appears to identify itself relative to a reference group (e.g., the incomes of others in their neighborhood or in their companies). According to some empirical studies of self-reported well-being that economists have conducted in recent years, those who constitute the middle class seemingly are of like minds with regard to their economic situation. Specifically, having incomes far above those at the lower end of the income distribution appears to be a source of satisfaction to the middle class, but when those at the upper end of the distribution fare much better than they do, it can be a source of consternation to the middle class. As authors of one study put it, staying ahead of the Smiths and keeping up with the Joneses is important to the middle class. 

Date of Report: November 23, 2010
Number of Pages: 10
Order Number: RS20811
Price: $29.95

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