What if the middle-class kept up with the top 1 percent?
In America, the middle class has failed to enjoy the same growth in income as the country's top 1 percent of earners.
But what would have happened if every household on Main Street had enjoyed the same income growth as the country's top 1 percent? The result: the typical American middle-class household would be earning $156,318, or more than double its actual current average household income of $73,391, according to data from the left-leaning think tank Economic Policy Institute. (The EPI considers the middle class to between 20 percent to 80 percent of the country's income range.)
Some might scoff at the unlikelihood of the typical middle-class American household earning that much, but the calculation is designed to underscore how the fortunes of the country's top 1 percent have deviated so drastically from everyone else's. While it's not a new phenomenon, since the top 1 percent started to pull away from the rest of America's earners in 1980, that pattern has only accelerated.
The top 1 percent of American families saw their income jump 21.2 percent last year, compared with only 3.3 percent for the bottom 99 percent, according to research published last month from economist Emmanuel Saez.
"As to why the top 1 percent have done so well, I think that a key driver has been intentional policy decisions that shifted bargaining power from low and moderate wage workers to corporate managers and capital-owners," EPI director of research and policy Josh Bivens wrote in an email. "The laundry list of those changes is long."
Those changes include everything from a stagnant minimum wage to tax policies and interest rates that favor the wealthy. The Federal Reserve's zero interest rate policy, for example, has helped those with the capital at hand to invest in more capital. That's boosted the fortunes of investors who were able to buy real estate or stakes in businesses, given that they could find loans at very low rates, which made the cost of their investments much lower than in previous decades.
The tax system has also added to the coffers of the very rich. Because capital gains enjoy a much lower tax rate than wages, wealthy Americans who rely on dividends and profits from the investments are able to keep much more of their income than middle-class workers, who are often paying a higher tax on ordinary income.
A household earning $156,318 would be slightly above what EPI considers the middle-class. The analysis is based on data from the Congressional Budget Office from 1979 to 2011. The top 1 percent of Americans took home $1.45 million in 2011, or almost 150 percent more than what they earned in 1979. The middle class, meanwhile, saw its income rise only 17 percent in the same time period.
Labor standards have also eroded, Bivens noted, such as overtime protections, leaving more middle-class workers stranded in years of stagnating pay. The good news for many workers is that the White House is raising the threshold income level for overtime pay, which could give 5 million Americans a raise. Right now, workers making more than $23,660 per year can't claim overtime, but that would be raised to a cap of $50,400 annually.
The EPI has an interesting -- or depressing, depending on your point of view -- tool to illustrate how those trends may have impacted your paycheck. Their wage calculator shows how much you would have been making if wages had kept up with productivity. An American making $40,000 now would have earned $61,055 if wages hadn't lagged since the 1970s.
Better times may be ahead for some workers. With states and municipalities boosting their own minimum wages, many low-paid workers are finally seeing income gains.
Still, wage gains across the board are still trending below pre-recession figures. If the economy were stronger, wages would be increasing between 3 percent to 4 percent, considered "normal" growth rate. But the annualized rate or wage growth in June fell to 2 percent, from 2.3 percent in May, the Labor Department said on Thursday.