As US Middle Class Shrank, UK & France Saw Boom

(CN) – While expanding in France, the United Kingdom and the Netherlands over the past quarter century, the middle class shrank during those same years in the United States, Germany, Italy and Spain, a new study finds.

The Pew Research Center described the findings in its April 24 analysis of how the middle classes are fairing in the West.

The study found, to the good, that since 1991 some nations experienced both growing incomes and expanding middle classes. However, at the same time, the analysis of 11 Western European nations found that many other nations are witness to stagnant or declining incomes and shrinking middle classes.

The research looks specifically at the period from 1991 to 2010, and includes comparisons with changes in the United States over the same period. For sake of comparison, the Pew Research Center defined those fitting into the “middle class” and “middle income” as adults who live in households with disposable (after-tax) incomes ranging from two-thirds to double the country’s median disposable household income.

As a result, the income it takes to be middle class varies across countries.

So what did the researchers find?

As noted above, the shares of adults living in middle-income households increased in France, the Netherlands and the United Kingdom, but they shrank in Germany, Italy and Spain.

From 1991 to 2010, the middle-class share in the UK increased from 61 percent to 67 percent, but it decreased from 78 percent to 72 percent in Germany.

Among the 11 Western European countries examined, the expansion in the UK was second only to the increase in Ireland, where the share increased from 60 percent in 1991 to 69 percent in 2010. The decrease in Germany was the second largest after Finland, where the middle-class share fell from 82 percent to 75 percent over the same period.

Overall, the middle-class share of the adult population fell in seven of the 11 Western European countries examined, mirroring the long-term shrinking of the middle class in the U.S.

In most countries studied, decreasing shares of middle-income populations led to rising shares of adults in lower- and upper-income tiers. These shifts signal a sharpening of economic divisions among households in many Western European countries and the U.S. But the researchers said there was also a general improvement in the economic status of adults because the movement up the income ladder was greater than the movement downward in most countries from 1991 to 2010.

Among the Western European countries examined, the biggest gainers in economic status were the Dutch, the Pew Research Center said.

In the Netherlands, there was a decrease in the share of adults in the lower-income tier and an increase in the share in the upper-income tier, which together yielded a large gain in overall economic status. At the other extreme, the increase in the lower-income share in Spain was much greater than the increase in the upper-income share, for a net loss in economic status from 1991 to 2010.

Compared with Western Europe, the researchers found the middle class in the United States is smaller. Among the countries examined, the U.S. is the only country in which fewer than six-in-ten adults were in the middle class in 2010.

Meanwhile, compared with many Western European countries, greater shares of Americans were either lower income (26 percent) or upper income (15 percent). In other words, U.S. households were more economically divided than households in the Western European countries analyzed.

In the Western European countries, middle-class shares in 2010 ranged from 64 percent in Spain to 80 percent in Denmark and Norway. The share of adults who were lower income was lowest in the Netherlands (13 percent) and highest in Spain (24 percent), and upper-income shares ranged from 6 percent in Norway to 14 percent in the UK.

At the same time, the Pew research found that incomes of middle-class households in the U.S. are greater than the incomes of most Western European middle classes.

Financially, the American middle class is ahead of the middle classes in the Western European nations in terms of disposable (after-tax) household income, with the exception of Luxembourg. Middle-income households in Luxembourg lived on $71,799 annually in 2010, at the median, followed by $60,884 in the U.S.

The middle class in Italy lived on a median income of $35,608, the most modest means among the countries analyzed. But lower-income Americans are at the middle of the pack in terms of earnings, lagging behind or barely matching lower-income adults in Luxembourg, Norway, the Netherlands and Denmark.

(A note here: the researchers adjusted the incomes for household size, scaled to a household size of three, and expressed in 2011 prices and purchasing power parities; see the report’s Methodology section for more.)

Somewhat bracing from the U.S. perspective is that middle-class households in many Western European countries experienced a greater increase in income than their American counterparts saw during the study period.

While middle-class incomes in the U.S. are greater than those of most Western European middle classes, the U.S. ranked near the middle when it came to how much that income had increased, the study says

In the U.S., the median income of middle-class households rose 9 percent from 1991 to 2010. Ireland, Norway and the UK led other countries in raising the incomes of households overall and of households within each income tier during that period. The median income of middle-class households in Ireland increased 71 percent, followed by 48 percent in Norway.

Meanwhile, the incomes of middle-class households in Italy fell significantly (down 20 percent) and were virtually unchanged in Germany. This trend was also similar for the growth of the incomes of lower- and upper-income households.

A final finding of note: Income inequality — a hot-button issue everywhere — is related to the size of the middle class in a country.

The shares of adults who are in the lower-, middle- or upper-income tiers in a country are related to the country’s degree of income inequality – that is, the gap between the earnings of households near the top of the income distribution and those near the bottom.

Countries where incomes are more equal have larger shares of middle-income adults, and vice versa. In 2010, Denmark, the Netherlands and Norway, which had the largest middle-income tiers, had lower to moderate levels of income inequality. The U.S. and Spain stood at the other end, with the smallest middle-income tiers and among the highest levels of income inequality, the researchers found.

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