Alternative Approaches to Measuring the American Middle Class: Insights from the PSID

Jessie X. Fan, University of Utah
Hua Zan, University of Hawaii At Manoa

Defining the middle class remains challenging, with traditional measures like the Pew Research Center's pre-tax income-based definition (IMC) facing limitations in capturing true financial resources. To address this, we propose an alternative Expenditure Middle-Class (EMC) definition, which is based on household expenditures and better accounts for taxes, assets, and debts. The EMC provides a more accurate measure of permanent income, particularly for retirees, in-kind transfer recipients, and borrowers who may have high expenditures but low reported income. Using data from the Panel Study of Income Dynamics (PSID), we found that the EMC classifies a larger proportion of households as middle class compared to the IMC—65.86% versus 48.83%, respectively. The EMC captures key groups that the IMC misses, such as households with high assets but low income or high spending relative to income. Our analysis of time trends from 2011 to 2021 using PSID data also reveals differing trajectories: while the IMC shows a declining middle class, the EMC indicates a growing middle class over the same period. These contrasting results highlight the limitations of income-based definitions and suggest the EMC may offer a more nuanced understanding of the middle class, with significant implications for social and economic policies.

Keywords: Economic Demography, Data visualisation , Data and Methods, Inequality, Disadvantage and Discrimination

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