Education and the dynamics of middle class status

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The economic security of American families is a central concern for policymakers. Benchmarks for economic security include employment, homeownership, retirement savings and security, and financial literacy. These indicators broadly characterize middle-class status, and for many, achieving and sustaining a middle-class life is one of the most important measures of economic success. Indeed, a strong middle class is both a hallmark of overall economic health and a manifestation of the American dream.

Access to the American middle class was made possible by expand educational attainment during the 20e Century. The role of higher education in economic mobility is well established. Currently, access to post-secondary education opportunities, particularly a four-year college diploma, is more and more considered essential to succeed in an economy that requires advanced analytical skills, ease with computers and better intercultural communication skills. Equity of access to higher education is more questionable, especially during a period of steep increases in tuition costs. Many political interventions, including Pell scholarships and subsidized student loans, have sought to narrow socioeconomic gaps in entering and completing college studies. Nevertheless, equity of access to college and the opportunities it offers is a central concern in political discussions at the crossroads of education and the economy. Colleges and universities are also in turmoil over the COVID-19 pandemic right now, with worrying prospects for equity of access and educational outcomes.

In this report, we present recent historical context relevant to considering the value of post-secondary education in accessing the middle class. We look back over the past 40 years to assess the role that college education has played in the entry and persistence into the middle class for American households. Using data from the Panel Study of Income Dynamics (PSID) between 1980 and 2017, we study the entry and exit of the middle class, and the role of education as a determinant of middle class stability . We also examine how demographic factors interact with education to predict the entry and exit of the middle class.

To assess how the role of college education as a gateway to middle class status may have changed during this period, we form five cohorts from the PSID. First, we identify all households headed by an adult aged 25 to 64 in 1980. We then assess the role of education and other household attributes as predictors of middle class status in 1980. Then we assess the role of education and other household attributes as predictors of middle class status in 1980. Next , we follow these households for 7 years to determine whether households headed by a university graduate are more likely to maintain their middle class status over time. We then repeat this process with household cohorts starting in 1989, 1999, 2005 and 2011.

We find that the overall stability of the middle class declines over time and that college education does not necessarily against instability within the middle class. As shown in Figure 2, the proportion of middle-class families that remain in the middle class drops from about 62% to 49% (1980 – 1986) during the first 7-year interval of our analysis, and more recently. (2011 – 2017) goes from around 60 percent to 50 percent. This stylized fact is generally valid throughout the 1980s, 1990s and 2000s. It is important to note that some families leave the middle class because their incomes decline and are subsequently below middle class status, while others are experiencing income growth, moving up and out of the middle class.

Households whose head has a college education are more likely to have an income equal to or above that of the middle class, while heads with less than a university degree are increasingly in the bottom quintile of income distribution. And, to the extent that college education guarantees a middle-class lifestyle, it seems to come at the expense of being in the top quintile of the income distribution. For example, in the 2010s, the share of families headed by university who fell outside the middle class rose from 18.6% to 24%. At the same time, a similar share of middle-class families with a college education experience income growth, rising and falling into the top quintile.

The impact of college on obtaining and maintaining middle class status by race of head of household
Household head race
Black Non-black
Probability of belonging to the middle class 0.569 0.618
Impact of college on the probability of belonging to the middle class
In 1980 0.118 * -0.138 *
In 2011 0.086 * -0.105 *
Impact of college on the likelihood of leaving the middle class
Falling
In 1980 -0.033 -0.033
In 2011 0.023 -0.018
While getting up
In 1980 0.096 * -0.01
In 2011 -0.009 a 0.03
* Statistically significant at the 5% level
a. Statistically different from 1980, at the 5% level

Finally, we document the significant differences in the role of college graduation for middle class stability across race. Namely, we find that college education positively predicts middle class status among black households and top quintile status among non-black households. Moreover, while the university level served as a channel for black households to move up and out of the middle class in the 1980s, this upward channel appears to have weakened throughout the 2010s.

Read the full report.

The authors have not received financial support from any company or person for this article or from any company or person with a financial or political interest in this article. The authors are not currently officers, directors, or board members of any organization with a financial or political interest in this article.

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