Middle class shrinking? it's getting richer, just not broader

The American Dream, as traditionally defined, is subtly reshaping itself. It’s not that more Americans are falling behind; it’s that a significant portion are sprinting ahead, ballooning the ranks of the upper-middle class while the familiar “middle class” as we’ve known it dwindles. A new analysis from the American Enterprise Institute (AEI) paints a fascinating—and somewhat counterintuitive—picture of the U.S. economic landscape.

The rise of the upper-middle stratum

The data reveals a startling transformation. Since 1979, the percentage of U.S. households qualifying as upper-middle class—earning between $153,864 and $461,592 for a family of four—has tripled, now encompassing roughly 31% of the nation. That makes it the largest economic group in the country, eclipsing the traditional middle class. The shrinking of the “core” and “low” middle class segments isn’t a sign of widespread economic decline, but rather a consequence of upward mobility; households previously in those categories have simply climbed the income ladder.

Scott Winship, a senior fellow at AEI and co-author of the report, offered a blunt assessment to CBS News: “The whole distribution of Americans, from poor to rich, has done better over time. And to the extent that fewer people are within a fixed income range that we might think of as middle class, that's just because everybody's gotten richer over time.” It’s a shift in perspective, not a crisis.

The 'k-shaped' reality and women's earnings

This redistribution of wealth fuels the ongoing “K-shaped” recovery, where high-income earners are driving consumer demand while those with lower incomes struggle. But the story isn't solely about the top; a crucial element in this upward mobility is the rise in dual-income households, particularly fueled by women's professional gains. In 1970, only 11% of women held college degrees; today, that figure stands at approximately 40%, a statistic directly linked to increased lifetime earnings.

As Winship pointed out, “The additional opportunities that women have are a big part of the story. People have chosen to work more and afford more things, rather than, say, have more children or have a sort of traditional sole breadwinner, but then have less money to buy things.” This societal shift, coupled with overall economic growth, has undeniably reshaped income distribution.

The disconnect: feeling the pinch despite gains

Here's the rub: despite these statistical improvements, a recent CBS News poll reveals that a majority of Americans feel it's harder to achieve financial milestones—buying a home, securing a good job, raising a family—than it was for previous generations. This apparent paradox isn’t a contradiction, according to Winship. People tend to evaluate their personal financial situations more favorably than the broader economy.

However, the reality is that the cost of essentials—housing, education, healthcare—has dramatically outpaced inflation, squeezing household budgets even as incomes rise. While Americans may be earning more, the perception of financial well-being is often tied to the affordability of these core necessities, and those costs continue to climb.

The AEI analysis, based on Census data spanning from 1979 to 2024, provides a stark reminder: economic progress isn’t always a linear, feel-good narrative. It's a complex recalibration, a shifting of the economic goalposts, and a reality where the definition of “middle class” is undergoing a profound transformation.