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Hollowing Out
Article

Hollowing Out

The U.S. middle class is shrinking as households climb into higher, or slip into lower, income brackets.

Ali Alichi
Finance & Development , 2016
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Editorial Rating

9

Qualities

  • Innovative
  • Eye Opening

Recommendation

The American Dream seems to be fading, as the US middle class struggles to maintain a foothold. Between 1970 and 2014, middle-income households shrank from 58% to 47% of all US households. Until 2000, moving into the ranks of upper-income households accounted for most of the attrition. But since then, the number of middle-income households that slipped into lower income status has outpaced those rising to higher income levels. This “hollowing out” eats away at consumption, a major driver of economic growth in the United States. This powerful article by economist Ali Alichi provides a thoughtful look at the consequences of a dwindling middle class. getAbstract recommends it to policy makers and economists.

Summary

The middle class in the United States is quietly disappearing, as more of its citizens fail to achieve the American Dream. The middle class is critical to keeping consumption going, because high-income households spend only a comparatively small share of their incomes, while those with lower incomes have relatively little to spend.

The difference between those who have moved down the economic ladder since 2000, rather than ascending it, is striking: Only 0.25% of households have climbed to higher ground, versus the 3.25% that have fallen...

About the Author

Ali Alichi is a senior economist at the International Monetary Fund.

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