Wednesday, May 18, 2016

Despite headlines, Wisconsin also having middle class hollowed out

The recent release from the Pew Research Center on America’s middle class has led to an interesting “two sides of the coin” analysis when it comes to figuring out what’s been happening in Wisconsin in the 2000s.

First of all, let’s take a look at what the Pew Center defined as “middle income” for this survey.
In this report, “middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, after incomes have been adjusted for household size. 7 In 2014, the national middle-income range was about $42,000 to $125,000 annually for a household of three. Lower-income households have incomes less than 67% of the median and upper-income households have incomes that are more than double the median.

The income it takes to be middle income varies by household size, with smaller households requiring less to support the same lifestyle as larger households. Thus, a one-person household needed only $24,000 to $72,000 to be middle income in 2014. But a five-person household had to have an income ranging from $54,000 to $161,000 to be considered middle income.
Based on that definition, 51% of Americans were considered middle income in 2014, a decline from the 55% that fell under that category in 2000. It’s noteworthy that several mid-size cities in Wisconsin were listed as having the largest percentage of residents in their metro areas as being “middle income.” As the Pew report notes,
A distinct geographical pattern emerges with respect to which metropolitan areas had the highest shares of adults who were lower income, middle income or upper income in 2014. The 10 metropolitan areas with the greatest shares of middle-income adults are located mostly in the Midwest. Wausau, WI, where 67% of adults lived in middle-income households in 2014, had the distinction of leading the country on this basis, followed closely by Janesville-Beloit, WI (65%). Sheboygan, WI, and four other Midwest areas also placed among the top 10 middle-income areas.
The Eau Claire area also made the top 10, with 61% of its households being considered middle income. The Pew Report notes that many of the Midwestern areas that had a disproportionately large amount of middle-class households also tended to be disproportionately reliant on manufacturing, and most were in markets that were not in the top 50 for population in the U.S.

The “Wisconsin has a lot of middle-class” meme got a lot of play in the media when the Pew report came out last week, and it is an interesting stat. But it doesn’t tell the whole story. First of all, the Madison and Green Bay-Appleton areas are missing from the report, likely because their metro areas were expanded in recent years, so it was taken out of the Pew analysis. The other large metro area in the state didn’t have the same “huge middle class” dynamic that some medium-size metros did, as Milwaukee’s middle-income ratio was 52.6% in 2014.

That was still above the U.S. average of 51%, but Pew also reports that the Milwaukee area had sizable slippage in this category between 2000 and 2014. This is especially true when you look at the increase in lower-income households in Milwaukee, which seems to be the destination of most individuals who departed the middle-class.

2000 vs. 2014, Milwaukee metro vs US
Lower income
2000- U.S. 28%, Milwaukee 19.8%
2014- U.S. 29%, Milwaukee 25.5%
Change- U.S. +1%, Milwaukee +5.7%

Middle income
2000- U.S. 55%, Milwaukee 58.9%
2014- U.S. 51%, Milwaukee 52.6%
Change- U.S. -4%, Milwaukee -6.3%

Upper income
2000- U.S. 17%, Milwaukee 21.3%
2014- U.S. 20%, Milwaukee 22.0%
Change- U.S. +3%, Milwaukee +0.7%

And this trend of changes within the classes is what the Wisconsin Budget Project looked at in their analysis of the Pew research study. As you’ll see from this graphic, other than Eau Claire and (barely) Sheboygan, more often than not, any drop in middle-class Wisconsin households was due to people sliding into the lower class in those communities.

And then the Budget Project expands outward into the rest of the state, and shows that Wisconsin went against the national trend in this time period, as only 7 states had a higher difference between people going into the lower class vs going into the upper class. They weren’t alone in the Midwest for this trend, but it’s also in marked contrast to our neighbors to the west in Minnesota and Iowa.

Change in % in upper income vs lower income 2000-2014
Iowa +3.9%
Minn +3.3%
Ill. -1.6%
Wis. -1.9%
Ohio -2.6%
Ind. -5.0%
Mich -8.6%

Tamarine Cornelius at the Wisconsin Budget Project says it’s no coincidence that Wisconsin’s middle-class has struggled in the 2000s, particularly given what sector makes up a sizable portion of its economy.
One of the reasons that Wisconsin’s upper income tier has grown more slowly than our lower income tier is that there are far fewer jobs in manufacturing than in past decades. A bigger share of Wisconsin’s jobs are in manufacturing than in almost any other state, and those jobs often pay solid wages that allow workers to climb into the middle class. But the manufacturing sector has shrunk dramatically across the country, making those jobs harder to find, and forcing some former factory and foundry workers in Wisconsin to take jobs that pay less.

The decline in unionization is also one of the reasons Wisconsin’s middle class is giving way to the lower income group. Between 2000 and 2014, Wisconsin had one of the largest drops in the share of workers who belong to a union. Unionized workers earn more in wages and other compensation than non-union workers who are otherwise the same, and the higher wages help push additional households into the middle class. Union workers are also better off than their counterparts with regards to health insurance, retirement, and paid time off.
Note that the last year of this analysis is in 2014, before (right-to) work-for-less was passed in Wisconsin, and manufacturing slowed down with the oil bust and the strong dollar. Combine that with the increasing tax cuts and incentives that Governor Walker and WisGOP have handed out favoring the rich and corporate, and it doesn’t seem like Wisconsin’s 1.9% gap between rich and poor will be closing any time soon.

There are plenty of other angles to go at with the Pew Report “middle-class” report, so give it a click and see what you can find.

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