Perhaps the dominant theme in this year’s presidential election is the declining size of the U.S. middle class.
According to a Pew Research Center study released this month, the share of American adults in middle-income households—defined as those making between two-thirds and twice the national median income—fell from 55 percent in 2000 to 51 percent in 2014.
The corresponding share of upper-income households rose from 17 percent to 20 percent, while lower-income households climbed from 28 percent to 29 percent.
The Pew researchers found that middle-income households lost ground financially in nearly nine out of 10 metro areas studied—including Rochester.
Locally, the percentage of middle-income adults fell 2.9 points from 2000 (59.6 percent) to 2014 (56.7 percent). Among the 100 most populous U.S. metro areas, Rochester’s decline was relatively modest—placing 26th overall—well below the 5.2 point drop in Buffalo (68th place) and 5 point decline in Albany (61st place).
Nevertheless, the painful fallout from the region’s shrinking middle class can most acutely be seen in the 10.4 percent drop in median household income for middle-tier Rochester households—from $79,587 in 1999 to $71,278 in 2014. Among the 100 largest metros, only the Atlanta area experienced a larger percentage decrease.
The contraction in middle-income households is closely tied to the long-running decline in manufacturing employment and resultant loss of well-paying jobs, relative to other employment sectors.
Annual earnings for Rochester-area manufacturing workers have fallen sharply versus the national mean, declining from 114.3 percent of the U.S. average in 2004 to 99.5 percent in 2015 (Figure 1).
Shrinking manufacturing payrolls have put enormous downward pressure on overall payroll earnings—with the average for all private-sector workers in the Rochester area falling from 95.9 percent of the U.S. mean in 2001 to 89.1 percent in 2015. Annual earnings for workers in all sectors excluding manufacturing remained relatively constant, moving from 87.4 percent of the U.S. mean in 2001 to 86.2 percent in 2015.
In the debate about the rise in income inequality—and potential policy solutions to the problem—the long-run decline in manufacturing employment stands front and center.
Gary Keith is vice president and regional economist at M&T Bank Corp.
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