Opinion and Economic Analysis

Hicks: Sustainable middle class now built on work

February 8, 2014

For most of recorded history, there was no real middle class. Cities, technological growth and political freedom brought to the world a merchant class, but it was not until the Industrial Revolution was in full form that a large number of households entered what we think of today as the middle class.

In America, and especially the Midwest, this middle class was built upon an unsustainable combination of low-productivity, high-wage jobs in large factories. That has been unraveling for a half century.

The second half of the 20th century saw a different middle class emerge, with workers across many industries applying high-value-added human capital to the production of goods and increasingly services. This is a sustainable middle class—built on work—in which most American households now belong.

To no surprise, these new jobs required greater human capital investment. This brought about two wholly predictable outcomes as a higher share of folks go to college. First, college becomes more expensive as less-well-prepared students come to campus; and second, the return on the investment declines as more folks have a degree.

It remains by far the best investment option available.

More time in school and more rapid technological change translates into greater income volatility among households. One statistical artifact of greater volatility is that a snapshot of income makes us look a lot more unequal than we are if we view earnings over a lifetime.

I entered college a few days after turning 18, meeting the poverty definition for four years. Nearly a decade in the Army had me earning middle-class wages. Leaving active duty, marrying and entering graduate school saw my household again beneath the poverty threshold.

In the 15 years I have been a professor, my family income has ranged from just below the national median to the top 5 percent of earners. At any given year over the past 30, my household income was in each of the five income quintiles, including nine years in poverty. But on average, we remain firmly in the middle class.

The income inequality lobby does a great job of ignoring the lifetime-earnings issue. Most likely this is because dispassionate analysis does not suit its purpose.

It would be surprising if this century didn’t see as much change in economic and class structures as did the last. If history is any guide, things will be better.

Still, education remains a route to economic comfort, not necessarily riches, and healthy folks dodge poverty easily by avoiding drugs, finishing school and waiting to have children.•

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Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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