Shifting Demographics Explain the "Hollowing Out"

In a post earlier this week, I featured a recent Pew Research Center report that presented data on the changing distribution of income in the U.S. between 1971 and 2011.  In 1971, Pew calculated that 25% of U.S. adults were in the “lower income” category, but by 2011 the share of “lower income” Americans had increased to 29% (see chart above).  During that period, the percentage of “middle income” Americans decreased from 61% to 51%, leading Pew to conclude that “The hollowing of the middle -income tier has been a steady and virtually uninterrupted process over the past four decades.”
 
Importantly though, there were very significant demographic changes that took place over that forty year period that could help explain the shifting distribution of income.  For example, consider three groups of Americans that would likely be overrepresented in the “low income” category relative to their share of the U.S. population: a) immigrants, b) older Americans, and c) young Americans in college.  How have those groups changed over time?

1.  In 1970, immigrants accounted for only 4.7% of the U.S. population, but the immigrant share of today’s population is 12.5%.

2. The percentage of Americans aged 65 or older in 1975 was 10.5 percent, but had risen to 13.1 percent by 2011.

3. The number of students enrolled at an institution of higher education increased from 4.2 percent of the total population in 1970 to 6.6 percent of the total population in 2009.

Over the 40-year period between 1971 and 2011, the number of immigrants, older people, and college students have all increased relative to the total population, and those groups would naturally be expected to have lower-than-average incomes.  The changing demographics could therefore help explain Pew’s conclusion that “… from 1971 to 2011, the U.S. adult population has become more economically polarized with relatively more in the top and the bottom tiers, and fewer in the middle.”

Bottom Line: What Pew calls “economic polarization” might alternatively be described simply as changes in demographics over time.  Compared to 1970, we now have more immigrants, more older Americans, and more young Americans in college as a share of the population, and that could help explain the “hollowing out” of the middle class and the increase in Americans with low incomes.  Pew’s rather gloomy conclusion is that the middle class is shrinking and “falling backward in income and wealth.”  But perhaps it’s more the case that shifting demographics and longer life expectancy over the last forty years can explain what is likely just a natural increase in the percentage of Americans classified as “low-income.”

HT: Colin Grabow