How America's Middle Class Compares to the Rest of the World

[Midpack]

Just thought it was an interesting perspective. Most readers here are very familiar with how we got here, but maybe not exactly how the USA compares to relative size of our middle class vs other countries?

It would be interesting to see the relative size of groups above and below middle class by country as well...

Middle class share of wealth chart - Business Insider

No, your eyes aren't deceiving you. As a percentage of total country wealth, the U.S. middle class accounted for the lowest share of wealth among developed countries, such as Germany and France, as well as emerging markets like China, India, and Brazil.

 

[Car-Guy]

Other interesting comparisons might be a comparison of standards of living, quality of life or human development index (HDI) between these countries. I doubt the US would be on the top of any of those either.

Plenty of articles/links out there to review if you are interested.

 

[kcowan]

38% to 42% seems to be the sweet spot. I suppose the Wall Street meltdown and subsequent bailout caused the most severe decline for the US. I suspect the decline will continue with the existing tax policy.

 

[38Chevy454]

I would like to also see what middle class is defined as compared to std of living. For some countries, the middle class may be comparable to our poverty level.


I do tend to agree the middle class in US has declined. Although I feel it is because the bottom has gotten bigger due to former middle class moving down more than because of middle class moving up.

 

[folivier]

I would also be interested in seeing how the USA compares with number of citizens who are receiving government assistance. Not to be political but information is information.

 

[Meadbh]

I would like to also see what middle class is defined as compared to std of living. For some countries, the middle class may be comparable to our poverty level.

The definition used in the report is wealth (net worth) of US$50,000 to US$500,000, with purchasing power parity applied to other countries. See Page 28 et seq of the report.

 

[samclem]

Obviously this type of report is highly dependent on the definitions used.
The definition of "middle class" in this report has nothing to do with income, just assets--between USD $50K and $500k. So individuals earning a steady income of $200K a year aren't considered middle class unless they've saved $50K. Hmm.

As an interesting aside--what if we included the NPV of SS in the US numbers? Not an apples-to-apples comparison, surely (because an individual has no legal "ownership" of those assets), but it's also true that their individual wealth might be a bit higher if they'd been allowed to keep that money they pad in to SS over the years.
Virtually anyone who has had a job in the US at even the minimum wage for the required "40 quarters" (10 years) has earned a SS benefit with a NPV of over $50K. So, too, for the souse of anyone who has at least worked that long. And even if we decrement it for the anticipated shortfall in the "trust fund." So, the US "middle class" would be a LOT bigger than what this paper shows.

 

[Midpack]

As an interesting aside--what if we included the NPV of SS in the US numbers? Not an apples-to-apples comparison, surely (because an individual has no legal "ownership" of those assets), but it's also true that their individual wealth might be a bit higher if they'd been allowed to keep that money they pad in to SS over the years.

Virtually anyone who has had a job in the US at even the minimum wage for the required "40 quarters" (10 years) has earned a SS benefit with a NPV of over $50K. And even if we decrement it for the anticipated shortfall in the "trust fund." So, the US "middle class" would be a LOT bigger than what this paper shows.

Or maybe that calculation would have the opposite effect to what you're expecting. Social Security equivalents (the US is not unique among OECD countries) appear to be more valuable in almost every other OECD country. So the US "middle class" might be SMALLER if anything.

Policy Basics: Top Ten Facts about Social Security | Center on Budget and Policy Priorities

 

[niven]

Yes, the report used these purchasing power parity (PPP) figures to come up with an equivalent middle class figure for each country. But the definition of a middle-class US adult as being between the nice round numbers of USD 50,000 and 500,000 smacks of pulling figures from where the sun doesn't shine. The report even says they don't really try to justify those values.

There are constantly arguments about things like the US inflation measurements. How much faith can we put into these PPP numbers? Are the products purchased of similar, worse or better quality?

And someone mentioned government assistance, but what about the healthcare and retirement systems of each country? Are they taken into account in any way?

I don't think I'll give this report any more thought.

 

[samclem]

Definitions of "poverty" always carry some political baggage. But, still, "poverty" is definitely a relative term. From this site:

We get much more insight, though, once we have a look at what UNICEF means by "poverty rate." In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income. UNICEF uses 60% of median as the cut off. So, if you're in Portugal, and your household earns under 60% of the median income in Portugal, you are poor. If you are in the US and you earn under 60% of the US median income, then you are also poor.

The problem here, of course, is that median household incomes — and what they can buy — differs greatly between the US and Portugal. In relation to the cost of living, the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.

The chart below has been adjusted for PPP, so it is in "international dollars"

​

The green bar for the US is the top of the US poverty level income (60% of median GDP). The blue bars for the other OECD countries are the median incomes in those countries. Again, all in these PPP dollars. US median income would be $30K, only 3 of the 32 other nations have higher median PPP adjusted incomes.

Or maybe that calculation would have the opposite effect to what you're expecting. Social Security equivalents (the US is not unique among OECD countries) appear to be more valuable in almost every other OECD country. So the US "middle class" might be SMALLER if anything.

For the interested reader, it would be a simple thing to multiply the median incomes above by "median SS-replacement rate" shown in the graph you provided to find out if the US median worker comes out ahead or behind other OECD nations in the this measure of wealth. Example: If 60% of US median is about $18K (from above graph), then the US median income is $30K. SS replacement is about 42% (from your chart), so that's $12,600 PPP dollars. If we look at France, they have a median income (see above chart) of about $20K, and so even with a comparatively very "generous" SS replacement ratio of about 58%, the SS amount comes to $11,6000 per year, or about 8% less than the median US SS check. Again, already converted to PPP. So, at least when comparing median income workers, it appears SS checks to US retirees are larger than to their French counterparts (in comparable dollars), and so do more to raise their relative wealth and any associated relative international rankings based on that income.

But, in the bigger picture, if the poor in the US can have have a higher income (again, on a PPP basis) than the median income in many OECD nations, then it seems likely that most people in the US have had a better opportunity than those in most other OECD nations to amass some savings and net worth (back to the metrics in the OP). If they have chosen not to do so and now have low net worth...that's what freedom is about. I'm sure they recognized the ramifications when they made their choices.

 

[Gone4Good]

From this site:

The chart below has been adjusted for PPP, so it is in "international dollars"

​

The green bar for the US is the top of the US poverty level income (60% of median GDP). The blue bars for the other OECD countries are the median incomes in those countries. Again, all in these PPP dollars. US median income would be $30K, only 3 of the 32 other nations have higher median PPP adjusted incomes.

The first thing I do when presented with data like this is consider the source. In this case, the Mise Institute isn't what one would call an objective think tank, so approach with skepticism.

Then looking at the chart I immediately notice how oddly it's formatted. The random sorting makes it hard to see which countries are above or below the adjusted U.S. number.

A closer look reveals the reason for the strange sorting. Plenty of the bars lower than the U.S. represent lower income eastern European countries and some developing countries as well.

Then I notice Mise's odd choice for a poverty threshold of 60% of median income, claiming that it's the UNICEF definition. But UNICEF says the following . . .

Under this definition, a child is deemed to be living in relative poverty if he or she is growing up in a household where disposable income, when adjusted for family size and composition, is less than 50% of the median disposable household income for the country concerned.

So if we recast the chart using OECD data with proper formatting and using the UNICEF / OECD poverty threshold we get something that looks like this . . .

So the U.S. relative poverty income threshold of $15,500 falls within the bottom third of OECD countries median income. That third is populated almost entirely by lower income eastern European countries. Immediately above the U.S. on the chart are a handful of European nations with unemployment rates between 10% and 25%.

It's certainly a testament to the U.S.'s relative wealth that the income of people at the upper threshold of poverty still rank so highly in such a comparison. But it hardly supports Mise's headline that "The Poor in the US Are Richer than the Middle Class in Much of Europe"

 

[samclem]

A closer look reveals the reason for the strange sorting. Plenty of the bars lower than the U.S. represent lower income eastern European countries and some developing countries as well.

The strange (aka "alphabetical") sorting? The countries are the members of the OECD.

Then I notice Mise's odd choice for a poverty threshold of 60% of median income, claiming that it's the UNICEF definition. But UNICEF says the following . . .

And UNICEF also says:

Most European Union countries draw the relative poverty line at 60% of national median income. For purposes of international comparison, the OECD (and this Report Card series) uses a relative poverty line
drawn at 50% of median income.

and:

In the case of relative income poverty, for example, should the line be drawn at 60% of median household income (as in the European Union) or at 50% (as used by the OECD for purposes of international comparison)? By way of reassurance, Figure 5 shows that there is little change to the relative child poverty rankings when the line is drawn at different percentages of median income.

I don't know what UNICEF used in the past or in other documents, but as you note, in their "Report Card #10" they used the 50% threshold.

But we've gone down a bit of a rabbit hole. The discussion was about the relative contribution that US SS and the analogous old-age public pension schemes in other countries would make to the relative size of the "middle class" (using the net worth definition, as given in the OP, so SSS would be converted to NPV). To look at that, we need the OECD median income chart in PPP (which I gave) and SS replacement chart (given by Midpack).

So if we recast the chart using OECD data with proper formatting and using the UNICEF / OECD poverty threshold we get something that looks like this . . .

Yes, that looks right, if we are using the 50%-of-median poverty definition and 2007 numbers.
Quote:
Originally Posted by Midpack
Or maybe that calculation would have the opposite effect to what you're expecting. Social Security equivalents (the US is not unique among OECD countries) appear to be more valuable in almost every other OECD country. So the US "middle class" might be SMALLER if anything.

G4Gs chart shows the median (2007) household income across the OECD as $19K (PPP dollars). The average OECD SS income replacement ratio (57.9%) gives an annual pension of $11k. Our median US retiree ($31K income, 42% replacement ratio) gives an annual pension of over $13K, 16% higher than the OECD average.

So, now we know the answer, at least in the case of median income earners across the OECD.

 

[Gone4Good]

G4Gs chart shows the median (2007) household income across the OECD as $19K (PPP dollars). The average OECD SS income replacement ratio (57.9%) gives an annual pension of $11k. Our median US retiree ($31K income, 42% replacement ratio) gives an annual pension of over $13K, 16% higher than the OECD average.

So, now we know the answer, at least in the case of median income earners across the OECD.

That OECD data includes adjustments for taxes and transfers, so it's already impacted by government pension payments.

An alternative approach would be to use the OECD per-capita income for a country at the OECD median income level like France of $39,000 (USD PPP) and the same number for the US of $54,000. Applying a SS replacement ratio of 58% and 42% respectively yields a roughly identical pension of about $22,600.

 

[HadEnuff]

What would be more illuminating would be to plot the trend over the last 30 years.

A snapshot is never as instructive as a viewing data over time.

 

[Senator]

Many of these countries are subsidized by the USA. When you see a term like "Trade deficit' from the USA side, translate it to "subsidy'. There are many other ways the USA subsidizes the rest of the world, directly and indirectly. It impacts what the Government can do to improve the middle class.

When you have these types of comparisons, without taking into account what 'middle class' is, and what the advantages are of each country, it is comparing apples to oranges.

 

[LOL!]

There is a lot of political baggage about Middle Class. My household is middle class as evidenced by our income and tax returns. Nevertheless, I see that the middle class in the USA is shrinking because lots of families are becoming wealthier than the traditional definition of middle class. Those families still like to call themselves middle class even though they are not.

Folks might like this animated chart on the definition of "middle income" over the years:
America's explosion of income inequality, in one amazing animated chart - LA Times

My conclusion is different from Hiltzik's, but I'll let you draw your own conclusions.

 

[Midpack]

There is a lot of political baggage about Middle Class. My household is middle class as evidenced by our income and tax returns. Nevertheless, I see that the middle class in the USA is shrinking because lots of families are becoming wealthier than the traditional definition of middle class. Those families still like to call themselves middle class even though they are not.

Folks might like this animated chart on the definition of "middle income" over the years:
America's explosion of income inequality, in one amazing animated chart - LA Times

My conclusion is different from Hiltzik's, but I'll let you draw your own conclusions.

That's a clever animated chart. Unless I am reading it wrong, it seems to show the middle class has moved right on the chart since 1971, toward more wealth. So while the middle class as defined in 1971 has shrunk, most have moved upward! That's unlike most of what seems to be reported, which suggests most people are sliding left toward lower incomes. What am I missing?

 

[eytonxav]

And I thought we couldn't even agree on exactly what middle class means in our own country

 

[Gone4Good]

That's a clever animated chart. Unless I am reading it wrong, it seems to show the middle class has moved right on the chart since 1971, toward more wealth. So while the middle class as defined in 1971 has shrunk, most have moved upward! That's unlike most of what seems to be reported, which suggests most people are sliding left toward lower incomes. What am I missing?

I do think the reporting has been skewed. You don't often hear that nearly twice as many people have moved into higher income quintiles than have fallen into lower ones.

But it's also important to remember that the impact on people's lives from these two scenarios isn't symetrical. It's much more awful to fall out of middle incomes than it is beneficial to rise above.

And given the relative awfulness, I think it's understandable why folks might want to focus attention on the large numbers of people who are falling out of the bottom and wonder if there is anything that can be done to remedy that.

 

[LOL!]

Some reports have shown that it is not so much "people who are falling out of the bottom [of the middle class]" as it is new people getting out of school and entering the work force. My kids are examples of that. They did not get starting salaries of $100K a year right out of high school.

 

[frayne]

Good article and especially liked this part.

How the middle class can take back its lost wealth.
Middle-class individuals and families looking to get back on track should have four main focuses: improving their savings rate, reducing debt, minimizing taxes paid, and investing more.

 

[Hermit]

I do think the reporting has been skewed. You don't often hear that nearly twice as many people have moved into higher income quintiles than have fallen into lower ones.

But it's also important to remember that the impact on people's lives from these two scenarios isn't symetrical. It's much more awful to fall out of middle incomes than it is beneficial to rise above.

And given the relative awfulness, I don't think it's unreasonable to focus attention on the large numbers of people who are falling out of the bottom and wonder if there is anything that can be done to remedy that.

So lets give "awful" a real face. I have a single friend that lives down the way from me. He rolled his truck about 4 years ago and destroyed a couple of vertebrae in his back. He lives on SSD. That is about $12,000 per year which is tax free. The state gives him $1000 worth of propane to heat his trailer whenever he needs it. He can get free food at the local pantry but usually doesn't bother because he can't eat it all. He orders most of his food from Amazon. He has a car, satellite TV and internet and last Fall he bought a new Polaris off road vehicle. He has had over $2,000,000 worth of medical care to fix his back. He lives every bit as well as I do on a lot less money. But I do have to pay taxes. I'm not complaining and neither is he, just saying you can live quite nicely and be happy on a fairly low (poverty) government supplied income.

 

[Senator]

...just saying you can live quite nicely and be happy on a fairly low (poverty) government supplied income.

As a former Section 8 landlord, I will vouch for that. It's a bit hard to travel, but not too hard, and you have lots of time.

 

[Bamaman]

Where other than the U.S. do the poor live so well?

Our poor have numerous color televisions, washer and dryers, and even cars. And so many of our poor are also fat--well nourished.

With a couple of kids, they can easily live a lifestyle approaching $24K per year net without jobs--totally supported by government entitlements.

 

[Senator]

With a couple of kids, they can easily live a lifestyle approaching $24K per year net without jobs--totally supported by government entitlements.

I think it is more than that....