The middle class in America emerged in the decades following World War II and expanded rapidly through the 1950s and 1960s. This period is often referred to as the “Golden Age” of the middle class, when incomes rose steadily, unemployment was low, and many families could afford a comfortable suburban lifestyle. However, since the 1970s, the middle class has been in decline, with wages stagnating, costs rising, and economic inequality increasing. When exactly did this reversal of fortunes for the middle class begin? In this article, we will examine the evolution of the American middle class after WWII and analyze the economic and policy changes in the late 1960s through the 1970s that marked the start of the middle class decline.
The Post-War Economic Boom and the Rise of the Middle Class
The middle class exploded in size and prosperity in the post-war period between 1945 and the late 1960s. Strong economic growth, fueled by pent-up consumer demand, federal government spending, and a manufacturing sector dominating the economy, led to rapidly rising incomes and low unemployment rates. Unions were strong, dominating many industries like auto and steel manufacturing, and able to negotiate good wages and benefits for their members. This delivered solid middle-class earnings to workers without high levels of education. The GI Bill provided money for returning veterans to attend college and buy homes, swelling the ranks of the middle class. New government programs like Social Security, Medicaid, Medicare, and Unemployment Insurance helped support middle-class families in hard times.
Average family incomes, adjusted for inflation, rose steadily in the 1950s and 1960s. Data from the U.S. Census Bureau shows that median household income (in constant 2018 dollars) increased from $27,988 in 1950 to $41,647 in 1970, a gain of nearly 50%. Homeownership rates also rose, from 55% in 1950 to 63% in 1960. The middle class grew rapidly, as blue-collar manufacturing and white-collar office jobs provided stable careers with good pay to a large section of American workers. The overall U.S. economy was booming, with real GDP growth averaging 4% per year in the 1950s and 4.4% per year in the 1960s. For the typical middle-class family, these were times of rising prosperity and upward mobility.
The Late 1960s and 1970s – Challenges Emerge
However, in the late 1960s and 1970s, cracks began to appear in the foundation supporting the middle class. The manufacturing sector began to decline as a share of the overall economy, impacted by automation and growing low-cost foreign competition. Union membership started falling, reducing labor’s bargaining power versus corporations. The 1973 OPEC oil embargo and subsequent energy price shocks drove up inflation and increased costs for consumers. Environmental and workplace safety regulations increased expenses for businesses. Health care and college education costs began rising much faster than overall inflation. Wealth and income inequality started slowly increasing again after decades of compression.
A series of recessions hit the economy in the 1970s, increasing unemployment and squeezing worker’s wages. The 1970 recession was relatively mild but highlighted growing inflation pressures. The 1973-1975 recession following the OPEC oil embargo was more severe, featuring high unemployment and inflation together described as “stagflation.” There was a short-lived recovery, but then a double-dip recession from January to July 1980 brought unemployment back up to 7.8%. These recessions disproportionately impacted blue-collar manufacturing workers, a core component of the mid-20th century middle class.
Key Economic Indicators Show Middle Class Decline Beginning in 1970s
| Year | Median Household Income | Homeownership Rate | Real GDP Growth |
|---|---|---|---|
| 1950 | $27,988 | 55% | 8.4% |
| 1960 | $35,380 | 63% | 2.6% |
| 1970 | $41,647 | 63% | 0.2% |
| 1980 | $31,443 | 64% | -0.3% |
| 1990 | $29,943 | 64% | 1.9% |
As illustrated in the table above, median household income stalled in the 1970s and declined sharply in the 1980s, even as homeownership rates remained flat. Real GDP growth slowed as well, averaging only 2.8% per year in the 1970s versus 4.2% in the 1960s. While the middle class continued expanding into the 1970s, the data shows the reversal beginning during this period.
Policy Changes Reduce Support for the Middle Class
In additional to challenging economic conditions, policy changes in Washington also had an impact on reducing support for the middle class. Some examples:
– Tax policy shifted to favor the wealthy over the middle class. The top marginal income tax rate was over 90% in the early 1960s but declined to 70% by the late 1970s. Tax rates on capital gains and corporate income also fell, benefiting higher earners.
– Union power declined after President Reagan fired over 11,000 air traffic controllers who went on strike in 1981. This signaled a shift against organized labor.
– Deregulation of transportation, telecommunications, energy, and banking accelerated in the 1970s and 1980s. This delivered benefits to consumers but hurt middle class workers in these industries.
– Foreign trade barriers were reduced and free trade agreements expanded after NAFTA in 1994. This helped large corporations but hurt domestic manufacturing.
– Spending on education lagged at both the K-12 and college levels, reducing mobility. College tuition rose much faster than inflation, making it more difficult to afford.
– Social safety net programs did not keep pace with rising costs or address the needs of the modern workforce. Eligibility and benefit levels were squeezed.
These policy shifts generally reduced support for the middle class while boosting corporations, the wealthy, and higher education. This accelerated the late-20th century divergence in incomes and wealth.
Conclusion
In conclusion, while the middle class continued growing in size and affluence into the 1970s, the reversal of its economic fortunes has its roots in this period. Challenging economic conditions, including stagnant wages, rising costs, growing inequality, and multiple recessions squeezed middle class households. Policy changes also reduced support, through declining tax rates for the wealthy, reduced bargaining power for labor, deregulation, free trade agreements, lagging educational investment, and weakened social programs. The late 1960s through the 1970s marked the beginning of the decline of the prosperous, growing middle class that emerged after WWII. However, the negative impacts on the economic stability and mobility for middle class families accelerated in the ensuing decades and continue today. Strong policy changes and renewed public investment will be required to revitalize middle class prosperity.