clock menu more-arrow no yes

Filed under:

What's the cost of a shrinking middle class?

SALT LAKE CITY — For Ryan and Gentry Holbrook, 2015 was a year of waiting, saving and planning.

In two months, it will all pay off. At least, that's when they hope to move into the house they're building in North Salt Lake. From there, they plan to make it a home, settle in for a while and start a family.

But it's been a long time coming, Ryan Holbrook said.

"It feels like the reason we've been able to get to where we're at today in such a slow-moving economy is just planning and planning and planning," he said.

"And saving," Gentry Holbrook added.

Since they got married in May, the young couple has been house-sitting for Ryan's parents while they're serving a mission for The Church of Jesus Christ of Latter-day Saints.

The extra time has been an opportunity to plan and save, but with wedding presents still piled in boxes in the basement, the next chapter of marriage still seems a few frustrating pages away.

"I just want to put everything together and make it our home," Gentry Holbrook, 26, said.

The waiting game also plays out in other spheres as Utah's economy continues to recover from the Great Recession. Gentry Holbrook earned her bachelor's degree from Westminster College in 2011, but finding a job that offers more than part-time hours has been tough.

"It is hard to find a full-time position where you're doing something you love," she said. "For me, being in a position of really having to budget and focus and make sure I'm on the right track, that's been an experience all on its own.

"Sometimes you have to swim a little," she said.

Ryan Holbrook, 32, has traveled frequently and done business with other states in his current job, where he's been working for the past nine years. He said Utah still seems better off than other states, which are still lagging behind in their economic recovery.

Utah has an environment that makes "mega milestones," like buying or building a home, a little easier to reach for young families, he said.

"I haven't felt the Utah economy to be as dire or as negative as it is elsewhere," he said. "I think we're a well-run state."

As thousands of millennial families like the Holbrooks move into new phases of career and family, America has reached a tipping point that signals economic progress. But with it comes a widening gap that separates the wealthy from the lowest income households.

That's according to a recent report by the Pew Research Center, which observed that the middle class became outnumbered last year by the portion of Americans in lower- or upper-class income tiers.

Utah's economic growth still contributes to dropping poverty rates and one of the lowest levels of income inequality in the nation. But the state's middle class isn't immune to trends that dozens of other states are experiencing — a growing wage disparity and a shrinking portion of middle-income households.

That's not always at the forefront of policy decisions when the growth of Utah's median household income continues to outpace the nation, according to Natalie Gochnour, associate dean of the University of Utah's David Eccles School of Business and chief economist for the Salt Lake Chamber.

But the stabilizing influence of the middle class on the economy could hang in the balance.

"It's something we should keep an eye on. The national trends in disparities between the haves and the have-nots should be a concern to everybody," Gochnour said. "Income distribution matters, and it's important for society to do the things that help vulnerable populations."

What's at stake?

Pew's report published in early December found the percentage of American middle-income households fell from 51 percent to 50 percent between 2011 and this year, while upper-income households gained 1 percent. Low-income households held steady at 29 percent between the two periods.

Census and workforce estimates show no shortage of promising trends for Utah's economy and that of the nation. But at the heart of it all lies a question that brings concern going forward: Why does the size of the middle class matter?

Broadly speaking, it has to do with economic prosperity overall, according to Gochnour.

"A large middle class would be consistent with a more equal distribution of income," she said. "There's a considerable body of research that suggests that economies perform better when they have more equal distributions of income."

On a personal level, the middle class can, in many cases, be the link between families and their communities, according to Pamela Perlich, director of demographic research at the University of Utah's Kem C. Gardner Policy Institute.

It provides paths for upward mobility and opportunity, while a shrinking middle class can invoke concern for businesses because fewer households are able to purchase beyond necessity.

"Middle class generally is associated with people who have the wherewithal to purchase homes or condos, and we know that that's such a stabilizing influence, that connects people to the community in ways because they're literally invested in it," Perlich said. "Middle class has been the bedrock of American democracy and the American economy."

It stresses the need for well-distributed economic growth and services to lift families where the benefits of a growing economy may not be seen, Gochnour said.

"What's imperative is you have standards of living that enable families and children in this state to grow up and become self-sufficient adults. To the degree that incomes can support family stability, economic opportunity, educational opportunities, those are very important," she said. "We like the notion of a large middle class because it would suggest that these things are present."

National trends

The U.S. reached the tipping point early this year when 120.8 million adults were in middle-income households, compared with 121.3 million adults in lower- and upper-income households, according to Pew's analysis of U.S. Census Bureau data.

"As a share of the American population, the middle class has been steadily shrinking. Their share has fallen from 61 percent in early 1970s to 50 percent today," said Rakesh Kochhar, associate director of research at the Pew Research Center. "It is no longer the economic majority in the U.S."

Pew defined the middle class for the U.S. as between two-thirds and double the median household income, with lower- and upper-class on either end of that range. That puts middle class as between $24,173 and $72,521 for individuals, and $48,347 and $145,041 for families of four.

Kochhar said most of the growth is occurring in the far edges of the income spectrum. Last year, 20 percent of American adults were in the lowest income tier, up from 16 percent in 1971. High-income households now represent 9 percent of the population, up from 4 percent in 1971.

"In these ways, we find the American middle class is losing ground, but there also is economic progress," he said. "If the middle is shrinking, it is going somewhere. If you look at where it is going, there is more movement up the income ladder than down the ladder."

Lagging behind

As with many trends, such as growing population diversity and dropping fertility rates, Utah is well behind the national curve but trending in the same direction. The same is true of the widening gap between Utah's high- and low-income households.

Last year, Utah ranked as having the third most equally distributed income in the U.S., second only to Alaska and Wyoming. That's according to Utah's Gini coefficient, an index that measures income inequality on a scale of zero to 1, where zero means every household has the same income and 1 means one household has all of it.

Utah's index of 0.4283 falls well below the highest index of 0.5224 for Washington, D.C., and the national average of 0.4804.

Gochnour said a low index is historically "characteristic" of Utah, and it's a measure that bodes well for the state of its middle class.

In metropolitan statistical areas, Weber, Morgan, Davis and Box Elder counties collectively had the most equally distributed income of any metro area in the country, according to Census estimates. Utah and Juab counties also collectively rank in the top 10 metro areas in the country for income equality.

"When we look at measures of income equality, Utah performs very well," Gochnour said.

But Utah's income distribution is becoming less equal. Between 2006 and 2014, Utah had the 17th largest increase in income inequality measures, among 47 other states that also increased. Washington, D.C., and Hawaii were the only areas that improved their equality measures.

The growing disparity is partly thanks to what local economists say has been an uneven recovery from the Great Recession that favors the well-educated and punishes those with skills not compatible with a new economy.

"People without a bachelor's degree, especially, are slipping down the income ladder," Kochhar said. "We have an economy that more and more demands high skills in the job market, and without a bachelor's degree, you are at a disadvantage today."

Perlich said the decline in Utah's middle-class population is behind that of the nation. But Utah will likely follow the national trend as the state becomes increasingly connected on national and global scales, she said.

In the meantime, Utah increased its median household income by $4,204 to a total of $59,846, compared with the nation's average increase of $2,057 to a total of $53,482. Poverty in the state was at 11.8 percent and dropping last year, compared with 15.5 percent for the U.S.

"The share in poverty is smaller, and the share of the superrich is smaller. Where you see the median income still going up, that shows inertia in that middle class," Perlich said. "We have not reached that tipping point yet."


Twitter: MorganEJacobsen