U.S. middle class income stagnation, 2000--2007: Reality or illusion

In the 2008 U.S. presidential campaign, a recurring theme of the eventual winning side was that the economic policies of the then-incumbent administration had caused middle class incomes to stagnate, and income inequality between the rich and the middle class to increase. That theme was based on two statistics: (1) real median household income published by the Bureau of the Census, and (2) real GDP per capita published by the Bureau of Economic Analysis; the former was unchanged in 2007 versus 2000, while the latter had grown. However, neither bureau defines "middle class" or "rich"; as a result, the campaign theme's premises depend on the two implicit assumptions that (1) the median household is a reliable proxy for the middle class, and (2) comparing per-capita GDP growth with that of median household income is the proper way to infer rich-versus-middle income inequality. This study uses the same Census Bureau databases to examine both of those assumptions in detail; in short, the results contradict both of the campaign theme's premises. Not only do several possible definitions of "middle class" and "rich" household ranges indicate that middle class income growth outperformed that of the rich, this study's analysis of synthetic cohorts reveals income mobility effects and demographic shifts that help explain why this closer look into the Census Bureau's data contradicts the 2008 campaign theme. In short, not only did quintile-specific cohort analysis reveal a seven-year displacement of both work and income shares towards the youngest working-age cohort, the direction of those shifts was disproportionately towards the middle class. This study quantifies the negative effects of such shifts on average class-level incomes and growth rates, helping to explain the apparent "stagnation" of middle class income.