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Are US Middle-Class Incomes Really Stagnating?

CAMBRIDGE – The challenge of raising the incomes of middle-class families has emerged as an important focus of the presidential election campaign in the United States. Everyone agrees that incomes at the top have surged ahead in recent decades, helped by soaring rewards for those with a high-tech education and rising share prices. And there is general support for improving programs – such as food stamps and means-tested retiree benefits – that help those who would otherwise be poor. But the public debate is largely about how to help the more numerous (and politically more important) middle class.

Here, much can be done by improving existing government programs: expanding market-relevant training, increasing opportunities for married women to join or rejoin the labor force, reducing the penalties in Social Security rules for continued employment by older workers, and changing tax rules in ways that will increase productivity and wages.

But, while strengthening such programs should be a high priority, we should not lose sight of how well middle-income families have actually done over the past few decades. Unfortunately, the political debate is distorted by misleading statistics that grossly understate these gains.

For example, it is frequently said that the average household income has risen only slightly, or not at all, for the past few decades. Some US Census figures seem to support that conclusion. But more accurate government statistics imply that the real incomes of those at the middle of the income distribution have increased about 50% since 1980. And a more appropriate adjustment for changes in the cost of living implies a substantially greater gain.