“The middle class” is a common phrase used to describe economic status in the United States, but there is very little consensus on what the term actually means, Dr. Melanie Zaber told Free the Facts at its Summer Series event on Wednesday night.
According to Zaber, the Co-Director of the Middle-Class Pathways Center at the RAND Corporation, there are varying definitions for the term, and this ambiguity is demonstrated by the fact that 90% of Americans identify as being members of the middle class.
Some economists define it as being in the middle of the income distribution of United States workers. Others use a consumption-based definition, weighing all the material goods that a middle-class worker can realistically buy—for example, a house and a car. Still other economists use a self-sufficiency-based definition, which asks the qualitative question of whether an individual feels they have enough income to adequately sustain themselves.
But however you choose to define it, Zaber said, one thing is clear: it’s becoming increasingly difficult for millennials to enter the middle class. During Wednesday’s Q&A, Zaber described several of these economic barriers to entry.
1. A decline in the number of middle-income jobs
Zaber pointed out that there has been a recent decline in the number of middle-income jobs that can be obtained with just a high school diploma. In the past, such jobs would allow one to sustain their entire family, but in recent years, they have seemingly disappeared.
“Automation, globalization, and changes in the structure of the market have eliminated those jobs or moved them to higher or lower incomes,” Zaber explained.
Automation, for example, has removed almost all human workers from production lines. Instead, manufacturers now need to hire engineers or programmers, jobs that require a college degree. In this way, educational requirements have increased in almost all industries, posing challenges for workers with only high school diplomas.
2. Wages have remained relatively stagnant
Zaber noted that while worker productivity has increased, wages have remained stagnant since the 1970s. Overall household income has increased, but this is a result of more women joining the workforce and a narrowing gender pay gap, not an increase in wages. Labor market returns have not kept up with the increases in costs of living, making it harder for young workers to enter the middle class.
3. Fissured workplaces
There is also the phenomenon of “fissuring” in American workplaces. Historically, employers have provided internal career ladders, compensation packages, and other benefits to their employees. However, modern employers—especially larger ones—tend to avoid hiring full-time employees, instead seeking out third-party staffing agencies or contractors to fill their teams. This leads to so-called “fissured workplaces.”
For example, there are a total of 570,000 employees working on Apple’s product development team. Only 63,000 of those workers, however, are directly employed by Apple. The vast majority are contractors and third-party hires.
“It really has changed the potential for mobility within a company, and that’s part of why we’re seeing an increased trend of people job-hopping and moving from company to company,” Zaber said.
4. Rising costs of living
Finally, the costs associated with renting and owning property, accessing post-secondary education, purchasing a healthcare plan, and hiring childcare have all dramatically increased. Since these are all characteristics of a middle-class lifestyle—at least, according to a consumption-based definition—when their prices increase, it poses a massive barrier for low-income Americans attempting to enter the middle class. Younger generations face their own specific challenges as well, such as graduating in a recession and facing an increased reliance on debt to finance their higher education.
These circumstances may sound discouraging, but fear not, Zaber assured. She offered younger attendees a number of reasons to be hopeful about their financial futures.
First, Zaber noted that prior to the pandemic, millennials were saving for retirement at rates experts had not seen among any prior generation. This financially responsible behavior, Zaber explained, shows that millennials are thinking about the long-term and are concerned about their future standard of living.
Moreover, millennials are now the largest cohort of workers in the United States, with Gen Z poised to overtake them in the near future. “And with numbers, comes power,” Zaber said. Millennials have proven their ability to change the discourse surrounding key public policy issues, and they hold the potential to change workplace policies as well. Among these, according to Zaber, are workplace policies related to diversity, equity, and inclusion.
Finally, Zaber noted that there have been several public policy changes made at the federal level to provide low-income Americans with the support they need to enter the middle class. She pointed out that the previous presidential administration invested in apprenticeships as a pathway to the middle class, while the current administration is pursuing free community college for low-income or all Americans.
The event concluded on an optimistic note. Zaber emphasized that millennials can make it into the middle class by doing “things that young people were already doing before the pandemic and recession: get the education that you can complete, live within your means, and save for the future.”
For more insights into what the future looks like for young Americans, join Free the Facts and Dr. Kathryn Edwards, economist and professor at the Pardee RAND Graduate School, on July 21st for the second event of the 2021 Summer Series.