Pew Research's How the American middle class has changed in the past five decades reports that the share of adults who live in middle-class households fell from 61% in 1971 to 50% in 2021.
As the Pew chart above shows, while the middle-income share was falling, the upper-income tier increased from 14% in 1971 to 21% in 2021. Also rising was the share of those in the lower-income cohort, from 25% to 29%.
At first blush, these numbers don't look so bad. After all, increases in the upper-income cohort explain 63% of the decrease in the middle class.
But the Pew chart below tells a more troubling story.
In 1970, middle-income households accounted for 62% of U.S. aggregate income. But by 2021, their share had fallen to 42%.
Meanwhile, upper-income households increased their share of U.S. aggregate income from 29% in 1970 to 50% in 2021.
The main driver of the share growth is that the income of upper-income households increased by 38% more than the incomes of middle-income households - and by more than 50% faster than low-income households.
Pew didn't go deeper in this study, but a prior Pew report - Trends in Income and Wealth Inequality - reported that the top 5% of households saw the most rapid growth in household incomes.
In other words, much of the share growth in aggregate income by upper-income households is attributable to the fast-rising incomes of the top 5% of U.S. households.
Widening income inequality has a variety of social, political and economic impacts. Growing political polarization is one example.
And an economic example is the growth of both dollar stores and luxury retail.
Another is the rise of side gigs and the gig economy due to the increased need for supplemental income by lower income Americans.
The trends driving inequality continue to be in place, and we expect income and wealth inequality to continue to increase.
