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New data show gap in wealth widening

 
Wendell Nolen, shown in Hamtramck, Mich., says he has experienced the slide from middle-class status first-hand. A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released this week by the Pew Research Center. [Associated Press]
Wendell Nolen, shown in Hamtramck, Mich., says he has experienced the slide from middle-class status first-hand. A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released this week by the Pew Research Center. [Associated Press]
Published May 13, 2016

WASHINGTON — In cities across America, the middle class is hollowing out.

A widening wealth gap is moving more households into either higher- or lower-income groups in major metro areas, with fewer remaining in the middle, according to a report released this week by the Pew Research Center.

In nearly a quarter of metro areas, middle-class adults no longer make up a majority, the Pew analysis found. That's up from less than 10 percent of metro areas in 2000.

That sharp shift reflects a broader erosion that occurred from 2000 through 2014. Over that time, the middle class shrank in nine of every 10 metro areas, Pew found.

Pew defines the middle class as households with incomes between two-thirds of the median and twice the median, adjusted for household size and the local cost of living. The median is midway between richest and poorest. It can better capture broad trends than an average, which can be distorted by heavy concentrations at the top or bottom of the income scale.

By Pew's definition, a three-person household was middle class in 2014 if its annual income fell between $42,000 and $125,000.

Middle-class adults now make up less than half the population in such cities as New York, Los Angeles, Boston and Houston.

"The shrinking of the American middle class is a pervasive phenomenon," said Rakesh Kochhar, associate research director for Pew and the lead author of the report. "It has increased the polarization in incomes."

The report documents several other key trends:

• Income for the typical household fell in 190 of the 229 metro areas studied, further evidence of the decline in U.S. living standards since 1999.

• Income inequality is lifting some Americans closer to the top even as people in the middle fall further. Median incomes fell 8 percent nationwide from 1999 to 2014. Yet the share of adults in upper-income homes rose to 20 percent from 17 percent. Middle-income households declined to 51 percent from 55 percent.

• The hollowing out of the middle class has occurred even as the income needed to meet Pew's definition of the middle has declined. A three-person household had to earn $45,115 in 1999 to qualify as middle class. Now, that figure is just $41,641.

Many of the income changes in the past 15 years have been much more dramatic at the local level than nationally. There are now 79 metro areas in which the proportion of adults in upper-income households equals or exceeds the national average of 20 percent. That's more than double the 37 cities in which that was true in 2000.

And the proportion of adults in lower-income households meets or exceeds the national average of 29 percent in 103 areas, up from 92 in 2000.

The report studied 229 of the largest U.S. metro areas, which constituted 76 percent of the U.S. population.

Overall, cities with the largest middle classes are more likely to be in the Midwest. Those with the biggest low-income populations are more often in the Southwest, particularly near the Mexico border. Metro areas with the highest proportions of upper-income households are more likely to be found in the Northeast or along the West Coast.