The Redistribution of Wealth? It Already Happened

Where Did the Middle Class Go?

By Published on .

Politically, there's been a lot of talk about the "redistribution of wealth" which seems to be a fancy way of saying "getting the people with money to help pay for the people who don't." We'll leave the politicking to the Colberts, Becks and Maddows, but the demographics of income have profound implications for those of us who want to sell products to the diminishing group who have a pile of disposable income, or the vast majority of consumers who do not.

It's probably not coincidental that the golden age of advertising took place in a time when there was a healthy middle class to sell product to. Those days are over. There's no point in arguing about redistributing wealth. It already happened.

Last spring (2010) the Census Bureau found that 42% of American households had an income between $50,000 and $150,000 a year. That's a pretty good proxy for middle class. Those 49 million households earned an average of about $85,000 a year.

Above them on the income scale were the 8% of U.S. households that had an annual income of $150,000 a year or more. Their average income was about $243,000 a year. Below them on the income scale (income under $50,000/year) were the not-well-off half, 50% of U.S. households. Their average income was just $25,000 a year.

Over the past 10 years, the middle class, as defined above, shrank from 44% of all households to 42%, while the percentage of households earning under $50,000 a year rose from 48% to 50%.

The numbers of the affluent have been less volatile. Despite a drop of 1.2 million households earning $100,000 or more between 2008 and 2009, the highest-earning households -- those earning $150,000 or more annually -- stayed at the same 8% level since 2000. All these comparisons are in inflation-adjusted constant dollars.

Had the American middle class maintained its 44% share of households, there would be an additional 2.6 million households (at an average of 2.5 people/household, that equates to 6.5 million people) in the middle class. Since the share of households earning more than $150,000 per year has remained the same, some middle-class households may have joined those households earning under $50,000 per year. In any case, we estimate that since 2000, the middle class has shrunk by 2.6 million households and it may have given up an average of $60,000 per household, totaling to an aggregate of $155 billion in consumer income.

During the past 10 years, average household income in constant dollars for all U.S. households dropped about $2,500 -- a 4% loss which indicated a $292 billion drop in total consumer income. So the middle class loss was only responsible for about half (53%) of the total loss of consumer income. The other 47% was lost almost entirely by those households earning less than $25,000.

Middle-class incomes have dropped slightly since 1988 in inflation-adjusted dollars. The median household income in the U.S. has been fairly stagnant for the last half century.

The growth has all happened at the top, according to a CNN/Money.com analysis that showed the explosive income burst for the top 5% of earners since World War I. The top 1% has seen income grow 33%. The top 0.01% now earns nine times what the rest of the top 0.1% earn and 875 times what the bottom 90% of Americans earn, according to University of California-Berkeley research cited in Mother Jones. While it's bounced around a lot from year to year, the share of income taken in by the top 1% of earners has grown significantly as other demographics have steadily lost ground.

There is plenty more to say on the subject, but it all adds up to a radically different picture of the American household than Ogilvy, Burnett, Rubicam and others faced.

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