The Middle Class Squeeze: Why Rising Incomes Don’t Feel Like Progress

Exploring the gap between economic statistics and lived reality for today’s middle class.

Is much of the middle-class actually living in poverty?

In this episode of Classonomics, we tackle the viral argument that we’re measuring prosperity incorrectly and that much of what we consider the middle class is actually living below the poverty line, because the official statistics don’t properly account for the true costs of being middle-class.

On paper, incomes are up, and unemployment is low. So why does it feel harder than ever to afford a home, raise kids, or even stand still? We break down the hidden costs of economic participation, from housing and childcare to smartphones and “technological coercion”, and examine the rise of the two-income trap that quietly resets the price of middle-class life. Are millennials truly worse off than their parents? Is inflation data masking reality? And were the 80s and 90s middle class, in part, a sitcom illusion? If you’ve ever felt “middle class” in theory but squeezed in practice, this episode explains why.

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Below is an AI-generated transcript of the Missing Middle podcast, lightly edited.

Sabrina Maddeaux: Hi, and welcome to the Missing Middle. I’m Sabrina Maddeaux.

Mike Moffatt: And I’m Mike Moffatt.

Sabrina Maddeaux: Today on Classonomics, we’re talking about why it’s so much more expensive to be part of the middle class than it used to be.

Mike Moffatt: Do you think it’s harder to join or stay in the middle class? Then it was 20 or 30 years ago? If so, let us know in the comments.

So, Sabrina, one of my favourite types of content on the internet is when people show a 1990s family that was supposedly struggling to get by, a family that was arguably not in or had fallen out of the middle class.

Think of The Simpsons or the Bundys from Married With Children, or the family from Malcolm In The Middle. And note that these families still manage to own decent-sized homes, have cars and so on. Despite the fact that they were shown as struggling just to be in the middle class. But if we look at the economic data over the past 25 years, average and median family income for every age category have risen faster than inflation.

Yes, housing has gotten expensive, but beyond that, a surface-level examination of the numbers suggests that it’s easier to join and stay in the middle class. So we have this weird disconnect where we look at these TV families and go, It was so much easier to be in the middle class back then. But we have this economic data that seems to be suggesting the opposite. That’s a hard thing to reconcile.

In the group chat, you sent us a piece titled My Life Is A Lie that provided a decent counter-argument to this idea that the economy’s fine and working for the middle class. We’ll link to that piece in the show notes. But can you walk us through what you liked about that piece and what it said about the middle class in today’s economy?

Sabrina Maddeaux: I like the piece because it was a very provocative thought starter on what it means to be middle class today and how we calculate that. There are some things I agree with and some I don’t, but it went viral for her reason. It really got to the heart of an issue a lot of people are experiencing, where they see their income on paper, and they’re told they’re middle class, or even upper middle class, but that doesn’t seem to be at all translating into the lifestyle or quality of life they’re able to live.

This piece explored why the American middle class feels poorer each year despite healthy GDP growth and low unemployment, and it hones in on how we define poor versus middle class. And the piece said that in the US, the poverty line was based on three times the cost of the minimum food diet in 1963 and has been adjusted for inflation. At that time, food used to be a much larger percentage of a household budget. Now, so much more has either increased in price, or we need to pay for more things. So you look at housing, and rent costs are now over 50% of someone’s income in many cases. You look at the cost of childcare, especially with two parents in the workforce. Things like having to buy certain types of technology, transit or cars. All these other costs have either been added to our budgets or have really ballooned in size.

The really provocative part of the piece is, the author argued that the poverty line these days should actually be defined as between $130,000 and $150,000, which I don’t know if that’s quite true, but I think it gets at a point that there is a much higher bar to economic participation than is acknowledged by how we’re defining classes in the traditional sense.

Mike Moffatt: So I thought some of the math is a little bit goofy, particularly when it gets to the $130,000 poverty line. I had some misgivings about the piece, but that said, I think there’s something there around the idea that it’s harder to join and stay in the middle class than it was 40 or 50 years ago.

Furthermore, while it is largely a housing story, I don’t think it’s entirely a housing story either. I think there is actually more to it than that. So I’d like to explore why many people are feeling this way, why this piece resonated with so many folks, and why those feelings might be right and why they might be wrong.

So in our group chat, we came up with four reasons why the general public, whether it be in the United States or Canada, feels that it’s harder to join and stay in the middle class, some of which the piece touched on. So, Sabrina, why don’t you start with one of the things that we came up with in our group chat? I’ll give the next one, and we’ll alternate from there.

Sabrina Maddeaux: Sure. The first reason is what I’d like to call technological coercion. The idea here is that the advent of new technologies like cell phones has improved our lives in many ways, but at the same time, they have gone from being luxuries to actually being requirements, especially to keep a full-time job and a job in certain industries. Smartphones are one example, a fantastic tool, but an absolute necessity these days. Many jobs will require you to be on call at all times to send emails. Applying for jobs is done online. Even to use two-factor authentication on a device you own… So many things in your life these days can’t be done without not just a cell phone, but a smartphone. There are probably all kinds of things you essentially have to buy now to be in the middle class that you didn’t 40 or 50 years ago.

You see a lot of the time on the internet, older generations saying, Oh, young people, what are they complaining about? They all have iPhones or cell phones now!

Well, you have to have that. It’s not always an option.

Mike Moffatt: And those things aren’t free.

My 14-year-old daughter and I occasionally play this game, and I point out stuff in the house or stuff in the car that didn’t exist when I was her age, and it’s a pretty long list.

You mentioned smartphones. Back when I was growing up, most kids in my class didn’t have any computers. And I’ve got these vintage Ataris behind me. But you could get away with not having one. Nowadays, it seems like every kid needs a laptop to do their homework. Obviously, you need high-speed internet. Or any speed internet. That didn’t exist in 1985.

As well, for some stuff that did exist, what is required or expected of people has increased.

So I think of hockey equipment. When I was a kid, hockey sticks were these big, heavy wooden things that weren’t always the fun thing to play with, but they were really inexpensive. Our hockey helmets probably didn’t give us the best protection, but they were relatively cheap. Now, if you want to have your kid in hockey, the sticks alone are well over 100 bucks; you have all of this really expensive equipment.

So it’s not just that there were things that didn’t exist back then that we have to buy now, but even the things that did exist back then, the technology while improving the products has made it such that they are far more expensive than they were back then.

Sabrina Maddeaux: So it’s not just the cost of economic participation, a.k.a. having a job and participating in the economy, but the cost of participation in just about anything.

And there’s another trend related to tech, I think, that ties in here: it’s the impact of VCs and startups like Uber heavily subsidizing their products and young people’s lifestyles through the 2010s. But now they’ve pulled those up to make a profit, and everything is full cost. And then you add in inflation on top of that.

Yes, some of these services, like delivery for food or Uber, might even be seen as little luxuries, but at one point in young people’s formative years, they did become a regular part of a middle-class lifestyle. Suddenly losing access to them, or struggling to afford them, feels like downward mobility and a lower quality of life. Even as people are making the same or more, or are later in their careers.

Mike Moffatt: I think that’s a really important point as well, that some of the business models, as Cory Doctorow talks about this a lot. These new technologies come out, and they’re super cheap, and they’re super great, but eventually these companies get a big market share and then are able to exploit that. They make the products worse, and they make them more expensive. But you’re sort of locked into that ecosystem. So I could see why people feel there’s a bait and switch there.

That’s a nerdy argument, but I’m actually going to go even more nerdy than Cory here. I’m going to go full econ nerd, and I think that one of the issues is how we measure inflation, which may be making it seem that things are getting cheaper than they really are.

So let’s go back to that smartphone example, where products change over time. So you think of it like the iPhone, which was a pretty good product. But it’s got a lot of new features. It’s just better than the original iPhone 1. So when you’re measuring inflation, you can’t treat those as equivalent products the same way that you can’t treat a small box of cereal and a large box of cereal as being functionally identical.

What happens in our inflation data is that, let’s say if the price of a product hasn’t changed, but the quality has gotten better, the inflation data actually records that as the product having gotten cheaper because you’re getting more bang for your buck there. So this is what economists call hedonic adjustments. Very nerdy term. And you see this a lot. For example, the price of televisions in the inflation data has fallen by 95% since the year 2000, but in one sense, that’s true because televisions have gotten a lot better. But it’s not true in a literal sense. You can’t go down to Walmart and buy a television for three bucks. So what is measured is a bang-for-the-buck sense. And that distinction is important because what’s really happened is not that when you buy the next generation of iPhone, you have more money in your pocket than you did a few years ago. What you have is a better iPhone in your pocket.

I think that can mislead people, where the things that the data says have gotten cheaper, haven’t really gotten cheaper, they’ve gotten better. And our inflation data doesn’t make that distinction.

Sabrina Maddeaux: That’s really interesting. And I imagine it would apply to a lot of different types of goods, as we’ve had such a rapid period of technical and logical advancements and innovations. So it’s probably making quite an impact on how people are perceiving the economy. Now, my next pick is what some call the two-income trap. Marketing guru Rory Sutherland describes this as the double income thing starts as an option, and then it becomes an obligation that as a society shifted towards having more dual income households and not only increased expenses, because now you needed a second car and daycare and after school care and so on, but that a lot of that extra income allowed families to do things like outbid each other for homes, which then created upward pressure on home prices. So a lot of these economic gains from having two people in the workforce didn’t actually go to the families themselves. And the point here, to be clear, isn’t that increased economic opportunities for a woman are a bad thing, but rather that there have been second-order effects and it just hasn’t made every household wealthier.

Mike Moffatt: And this is something I think about a lot because I grew up in the 70s and 80s and in my neighbourhood, where I first grew up…Both of my parents worked, and that was actually unusual for a lot of my classmates. Both my parents were schoolteachers. In the 1970s, when they bought that home, they were bidding against other families who only had a single income. So that allowed them to get a nicer house than I think would probably otherwise be the case. It also created a lot of cheap babysitting opportunities. I never had after-school care. I didn’t have to because all of my friends had stay-at-home parents. So we’d say, I’m just going to go over to Joey’s house after school because his mom’s going to be there and we’ll play Colecovision or what have you. So that’s changed.

First of all it has increased the price of housing because now you have two-income families competing against each other, but you also don’t have that army of stay-at-home parents. Even if you are a two-income family, you can’t just say, I’ll send my son and daughter over there and maybe I’ll give them some snacks or whatever to share. So it has increased all of those other expenses. So I think that’s a really good point.

And I think what you said is incredibly important, that we’re not suggesting that increased women’s participation in the labour market was a mistake or anything like that. We’re certainly not saying that. But there are these second-order effects when we go from a society where you have a lot of single-income families to a society where we’re predominantly dual-income.

Sabrina Maddeaux: And a couple of other impacts are that it also makes life events where one partner’s income is reduced or eliminated, such as a layoff or potentially an illness, that much more devastating. Especially as young people are bearing the brunt of unemployment and layoffs, existing in that two-income economy is even more difficult for them. It also makes certain other life events that used to be very standard and accessible to the middle class, where you might have a reduction in income or no income, like parental leave or starting a business, feel more and more like upper-class luxuries rather than middle-class options.

Mike Moffatt: Absolutely.

And I think we also have to recognize what this means for the existing single-income families. And that could be single people or single parents. It’s really made it hard for them to navigate in this economy, which has been really designed, accidentally designed, but designed for dual-income couples. It’s just made being single, particularly single with children, a lot harder to navigate.

So clearly that’s a big, important argument about why things are worse today than they were when I was growing up in the 1980s. And like any good economist, I’m going to give a two-handed answer here, and I’m just going to argue for the exact opposite of what we’ve been talking about for the last ten minutes.

And for my final pick, I’m going to make an argument that maybe things are actually better today. We are misleading ourselves. So I mean, to suggest that there’s perhaps a nostalgic gap here that we might be remembering the past better than it really was. I think part of the reason why is when we look at the past and our references on the past, we tend to do so through the lens of the media.

That you can’t go back and see what my life was like in the 80s or 90s. But you can go back and watch the TV show Friends or something like that. And a lot of the TV, the 80s and 90s, I would argue, is particularly misleading. In the real New York of the 1990s, Monica and Rachel couldn’t afford that apartment.

They were presenting a lifestyle that really didn’t exist. And while I take the point, and I think it is an important one, that people do need to purchase things today, that they didn’t need to purchase and say, 1985, the opposite is also true, that I remember my parents spending way too much money in the late 1980s on a set of encyclopedias which are still in their basement and still get used from time to time because they were simply too nice and expensive to get rid of.

You can also think of things like landline phones. We can think of things like newspapers. My first job was delivering the Toronto Star. Now people just go online, and sometimes they pay for news, sometimes they find ways to get it free. So we should recognize that there were a bunch of expenses back then that we don’t have today.

So while I absolutely believe that it was easier to join and stay in the middle class in 2004 than it is today, I do think we’ve created a bit of a vision in our minds of what the 60s, 70s, 80s, and 90s were like, which isn’t really accurate. So I do think we look at the past a little bit through a rose colored lense.

Sabrina Maddeaux: I think that’s true to some extent, but I have to disagree with you in that I think younger generations’ real frustrations and anger come from the fact that they can see that they’re downwardly mobile compared to their parents. They’re looking at their parents or even their older coworkers, who by simply being ten years older, might have the same salary, the same position, but they get to live vastly different lifestyles. And a lot of that does come down to housing. Especially the parent life stage to kids or even grandkids, you can really see the difference. One generation might have been middle class, and now the kid who’s in their 20s or 30s is living a lower middle-class or lower-class lifestyle.

I’ve written a lot about how income tax brackets then become disconnected from the lifestyles people are living. So a lot of people who aren’t living upper-class or wealthy lifestyles are being taxed as if they are.

Thank you so much, everyone, for watching and listening. And to our amazing producer, Meredith Martin and our editor, Sean Foreman.

Mike Moffatt: And if you have any thoughts or questions about going over to Joey’s house and playing Colecovision, please send us an email to the Missing Middle podcast at gmail.com.

Sabrina Maddeaux: We’ll see you next time.

Additional Reading/Listening that Helped Inform the Episode:

Part 1: My Life Is a Lie

How a Broken Benchmark Quietly Broke America

Cory Doctorow

Enshittification

Hedonic adjustments

Funded by the Neptis Foundation

Brought to you by the Missing Middle Initiative