An Empirical Analysis of Middle Class Welfare: Testing Alternative Approaches

Abstract

Every year the Census Bureau reports data on income inequality and poverty, based on income estimates derived from the Current Population Survey. Our analysis suggests that the data may not be presenting an accurate picture. By under-reporting incomes, leaving out certain sources of income, and not making equivalence adjustments that are now standard among researchers, the reports present an imperfect picture of overall welfare. We develop an alternative that relies on data from the National Income and Product Accounts. Our data reveal that real median incomes have been increasing in the recent period, albeit at a slower rate than the long-term average. Using the same methodology for consumption, we find that consumption for all income groups, including the middle, has been growing robustly in recent times. This is in contrast to statistics reported by the Consumer Expenditure Survey, the most often cited data for all consumption analysis, which show middle class consumption declining.