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Why America’s Middle Class is Vanishing

Why the middle class is shrinking.
April 25, 2017

For many people in America, being middle-class isn’t what it used to be.

Consider: In 1971, the middle class—households with incomes ranging from two-thirds of the national median to double the national median—accounted for almost 60 percent of total U.S. earnings. But in 2014, middle-class households earned just about 40 percent of the total national income. And adjusted for inflation, the incomes of goods-­producing workers have been flat since the mid-1970s.

“We have a fractured society,” says MIT economist Peter Temin. “The middle class is vanishing.”

Now Temin, an emeritus professor at MIT and a leading economic historian of his generation, has written a book exploring the topic. The Vanishing Middle Class: Prejudice and Power in a Dual Economy, published in March by the MIT Press, examines the plight of middle-income earners and offers prescriptions for changing our current state of affairs.

The “dual economy” in the book’s title also represents a bracing reflection of America’s class schism. Temin draws the term from Nobel laureate W. Arthur Lewis, who in the 1950s applied the model of a dual economy to developing countries. In many of those nations, Lewis contended, there was not a single economy but a two-track economy, one part inhabited by upwardly mobile, skilled workers and the other by subsistence workers.

Applied to the U.S. today, “the Lewis model actually works,” Temin says. “The economy can grow, but it detaches from the [subsistence] sector. Simple as it is, the Lewis model offers the benefit that a good economic model does, which is to clarify your thinking.”

In Temin’s updated version of the model, America now features what he calls the “FTE sector”—people who work in finance, technology, and electronics—and the “low-wage sector.” Workers in the first sector tend to thrive; workers in the second sector usually struggle.

There are multiple reasons for the stagnation of middle-class earning power, Temin thinks, such as the decline of unionization, along with “new technology, globalization, and public policy—it’s all of these things.”

In The Vanishing Middle Class, Temin insists that the interaction of racial politics and economics matters, too. “Race plays an important part in discussions of politics related to inequality in the United States,” he writes.

Incarceration policies have also exacerbated inequality, Temin contends. He notes that today about one in three African-­American men will serve jail time—“a very striking figure,” he says. “You can see how that would just destroy the fabric of a community.”

As one possible remedy, Temin advocates for greater investment in education at all levels, writing that education “provides a possible path that children of low-wage workers can take to move into the FTE sector.” He also calls America’s public education system “the wonder of the 20th century” and hopes readers will agree that it is a worthy investment.

“The people in this country are the resource we have,” Temin says. “If we maintain the character of our fellow citizens, that is really our national strength.”

Recent Books
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Tokyo Boogie-Woogie: Japan’s Pop Era and Its Discontents
By Hiromu Nagahara,
associate professor of history
Harvard University Press, 2017, $35

Domesticating Drones: The Technology, Law, and Economics of Unmanned Aircraft
By Henry H. Perritt Jr. ’66, SM ’70, and Eliot O. Sprague
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By Philip Kotler, PhD ’56
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Failing in the Field: What We Can Learn When Field Research Goes Wrong
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Please submit titles of books and papers published in 2016 and 2017 to be considered for this column.

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