MIT’s Greenstone: Middle Class Worse Off than Most Realize

Tuesday, 06 Nov 2012 12:29 PM

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The U.S. middle class is in much worse shape than people realize when it comes to household earnings, said Michael Greenstone, an economics professor at MIT and director of The Brookings Institution’s Hamilton Project.

Many economists agree that earnings have remained largely stagnant over the last 40 years, though when factoring in middle-class men who have left the labor force or are working part-time jobs, household incomes take a dive.

“The famous statistic about the middle class is that if you take the median earner, or the median male earner, that their wages have been stagnant for the last four decades. What we did is we looked at the number again and what we found is that due to a rather small statistical error, you get a quite distorted picture,” Greenstone told Yahoo.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

Many men are no longer in the work force or they are working part time, and when you put them back into the income equation, wages and household income are not stagnant but declining.

“What you find is that earnings of the guy in the middle have declined by about 20 percent over the last four decades,” Greenstone added.

“That puts their earnings back to the levels that prevailed in the early 1960s.”

More and more women have entered the work force in recent decades and have made up for the losses, though the same trend of waning earnings growth is affecting that demographic as well.

“The story for women is quite different. There has been a remarkable increase in their earnings and their education and a series of other great indicators, and to a large degree that has helped compensate for some the decline with men,” Greenstone told Yahoo.

“One thing to note, though, is in the last decade we started to see some of the same trends for women that we have seen for men over the last three or four decades. Their earnings have begun to stagnate.”

Education is key to reversing that trend, he said, as too many men especially have been failing to finish high school or attend college.

Meanwhile, the U.S. economy added 171,000 nonfarm payrolls in October, outpacing most expectations though still far short of making a dent in persistently high jobless rates that have strained household incomes.

The unemployment rate stands at 7.9 percent.

“It’s a decent report if we were at full employment. Unfortunately the economy has close to 8 percent unemployment and to bring that down to 6 percent over three years you would have to create about 350,000 jobs a month,” Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland, told Newsmax TV in an exclusive interview.

Other experts agree the number depicts an improving labor market but not a robust recovery.

“I think when you dig deeper into it, it’s still not a robust number by any means,” said Kathy Jones, fixed-income strategist at Charles Schwab in New York, according to Reuters.

“We’re way short of where we need to be to bring down the unemployment rate to where the Fed would like to see, closer to 6 percent than 8 percent.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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