As the world’s richest country by a significant margin, it’s little surprise that the American middle-class — long the bedrock of our society, culture, and identity — has also long held the top spot for being the most well off globally. But a recent study just reported in the New York Times has confirmed what many in the U.S. have begun to notice: that in addition to its relative decline in global and economic clout, America’s middle-class is following suit:
While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.
The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.
Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.
In European countries hit hardest by recent financial crises, such as Greece and Portugal, incomes have of course fallen sharply in recent years.
The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.
The results are all the more surprising given that the U.S. is not only still the world’s richest country overall, but a leader in various other metrics such as per capita gross domestic product that have continued to grow healthily. The discrepancy exposes the fact that these average do not reflect the actual distribution of income: a big share of all those continued gains in wealth and income gains is going to a relatively small number of high-earning households, a trend that’s far less pronounced in most other nations.
When one looks at median per capita income as opposed to average, it is $18,700 in the United States in 2010 — or, to put it another way, an after-tax income of around $75,000 for a family of four. While that’s up 20 percent since 1980 — when the U.S. middle-class was still the richest in the world — it’s been stagnant in real terms (e.g. after factoring in inflation) since 2000.
By comparison, when applying the same measure in to other countries in that span of time (between 2000 and 2010) the U.K. saw medium per capita income rise to about 20 percent , the Netherlands by 14 percent , and Canada by 20 percent. Furthermore, recent data mentioned in the article suggest that pay in Canada has risen faster than in the United States — and is now most likely higher — and has also risen higher in several European countries.
According to the study, one of the only other large economies to experience a similar level of stagnation over the past 15 years is Germany, whose heavily export-oriented economy has led policymakers to hold down the cost of exports by taking steps such as restraining wage growth.
But even in Germany, the poor and middle-class have fared better than in the U.S., where per capita income has declined far more rapidly across various income percentiles, and where Germany’s fairly generous public spending on things like healthcare and education don’t offer much respite from the ravages of poverty.
So what gives? Well, the Times article offers three probably explanations:
First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.
Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.
A second factor is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.
And because the total bounty produced by the American economy has not been growing substantially faster here in recent decades than in Canada or Western Europe, most American workers are left receiving meager raises.
Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.
Indeed, the study confirms that wealthier Americans nonetheless retain their top spot despite the declining circumstances of most other groups:
Americans at the 95th percentile of the distribution — with $58,600 in after-tax per capita income, not including capital gains — still make 20 percent more than their counterparts in Canada, 26 percent more than those in Britain and 50 percent more than those in the Netherlands. For these well-off families, the United States still has easily the world’s most prosperous major economy.
Granted, we mustn’t let the “grass is greener” mentality take hold. Middle-class families in other countries obviously have many worries of their own, some specific to their nation and others not unlike in the U.S. For example, many Europeans also wonder how they will pay for college, and hold a similar sentiment that the older generations had it better. Meanwhile, many Canadians nonetheless still struggle with the high cost of modern living, ranging from education to various bills. Furthermore, unemployment remains a consistent worry just about everywhere, with rates relatively higher now for most countries than before.
“The crisis had no effect on our lives,” Jonas Frojelin, 37, a Swedish firefighter, said, referring to the global financial crisis that began in 2007. He lives with his wife, Malin, a nurse, in a seaside town a half-hour drive from Gothenburg, Sweden’s second-largest city.
They each have five weeks of vacation and comprehensive health benefits. They benefited from almost three years of paid leave, between them, after their children, now 3 and 6 years old, were born. Today, the children attend a subsidized child-care center that costs about 3 percent of the Frojelins’ income.
Even with a large welfare state in Sweden, per capita G.D.P. there has grown more quickly than in the United States over almost any extended recent period — a decade, 20 years, 30 years. Sharp increases in the number of college graduates in Sweden, allowing for the growth of high-skill jobs, has played an important role.
In other words, often-cited metrics of prosperity — such as economic growth, stock-market health, corporate profits, GDP (per capita and national) — mean little if the amount of wealth they represent isn’t actually being allocated in a way that benefits the broader society. Whether that redistribution occurs via the private sector — through investing more corporate capital in higher wages, benefits, etc — or through state-mandated welfare programs doesn’t seem to matter except in the technical details.
Ultimately, wealth needs to be better invested through some sort of mechanism — private, public, or both — to make the most out of a nation’s potential prosperity. This is especially relevant given that too much inequality and the subsequent decline in a broad, middle-class consumer base could cause serious problems in the economy — for everyone. The U.S. clearly has the potential to do great things — from developing world-class nationwide infrastructure to funding big science initiatives and promoting a higher standard of living — but various socioeconomic structural problems are imposing visible limitations.
What are your thoughts?