Long portrayed as stagnant in economic terms, the income growth of the U.S. middle class may be much greater than suggested by economists like Thomas Piketty and Emmanuel Saez, according to a new study at Cornell University.
Median income of the U.S. middle class rose by as much as 37 percent from 1979-2007 says Richard Burkhauser, Cornell professor of policy analysis and management, in the study, "A 'second opinion' on the economic health of the American middle class," published in the March issue of National Tax Journal. In contrast, when Piketty and Saez-style estimates were used, median income increased by only 3.2 percent over the same period.
Unlike the IRS data Piketty and Saez use, Burkhauser's team -- using data from the U.S. Census Bureau's Current Population Survey -- was able to show how much the income picture changes when taxes are subtracted from market income and government transfers such as welfare assistance, unemployment insurance and Social Security benefits are added. The team also adjusted for household size and the value of health insurance -- factors Burkhauser says more accurately reflect financial resources available to middle class individuals.
Says Burkhauser: "When we broaden our measure to include government taxes and transfers and look at households adjusted for size, the gains of middle class Americans are ten times larger. The gains are even more when we include the value of in-kind income such as the value of employer and government provided health insurance."
The study demonstrates how the decisions one makes about what to include when measuring income (market income vs. after tax and transfer income from all sources) and how that income is shared (by tax unit or by household) can substantially change the view of how the average American has fared over the last 30 years, and can have implications for public policy choices targeted at specific income classes.
Burkhauser's co-authors are Jeff Larrimore of the Joint Committee of Taxation, and Kosali Simon, professor of public and environmental affairs at Indiana University.
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