US economy is getting regional; the middle class income is now regional as well

[sv2007]

I'm wondering what do you think is a middle class income?

Now, after you've answered that, can that money afford the typical things we associate with the middle class? (Like owning a house, sure with 30-yr fixed mortgage, 2 cars, oney for vacations, some savings.)

We all know that the us income inequality is very big and getting bigger. So that's nothing new and most will agree that it isn't a good thing.

But the inequity is wide between locales too; such that that there is no more middle class for the entire country anymore due to the huge different in house prices and job pays (ypes of jobs). It's gotten even widers than the historical rural/urban ratios.

I'm wondering if this is a good thing or a bad thing? Or just neutral?

If things seek money, and moeny is less evenly distributed than before, then services will become more imbalanced in the US. The federal government is a force that attempts to rebalance, but are we getting to the tipping point where the amount of money fed uses is too small for the reality (pace of migration) ?

[disneysteve]

there is no more middle class for the entire country anymore

Was there ever a dollar amount that would buy you the same lifestyle no matter where you lived? I don't think so.

What constitutes "middle class" (whatever that actually means) has always been based on geography.

The town I work in has a median household income of $26,000.
The town where I live, which is 8 miles away, has a median household income of $68,000.

What passes for "middle class" can vary dramatically based on location.

In my work town, you can get a decent house for $50,000.
In the town where I live, it's probably closer to $200,000.
Again, these locations are separated by less than 10 miles.

I think the constant emphasis on defining middle class is a waste of time, especially when trying to do it on a national basis.

[sv2007]

Steve,

I agree with you that middle class income is perhaps an obsolete term now. Hence my post for discussion.

However, a lot of politicians (and hence political talk) is still centered on the income of middle class. I think it may be because it is a concise summary (although perhaps obsolete and meaningless) for them, e.g. "we are saving you money by lowering the tax you pay, see here, middle class people make this much and you vote for me and you'll pay only this much", etc.

Another thing that I realize now (after thinking for a bit) is that maybe housing is becoming a very expensive relative to other item costs. Chart below from

http://observationsandnotes.blogspot.com/2011/06/us-housing-prices-since-1900.html

(I've not researched it more than that it's the first thing Google gave me on my search).
Although that chart is national, it is clear that it is increasing a lot faster than inflation.

Maybe the middle class income can be defined as the income after removing housing costs. Would that make it work for US middle class income?

The higher paying jobs (regional) also brings higher housing costs (regional), remove that and (if significant enough), we get a more useful number?

[pflyers85]

I'm wondering what do you think is a middle class income?

Now, after you've answered that, can that money afford the typical things we associate with the middle class? (Like owning a house, sure with 30-yr fixed mortgage, 2 cars, oney for vacations, some savings.)

We all know that the us income inequality is very big and getting bigger. So that's nothing new and most will agree that it isn't a good thing.

But the inequity is wide between locales too; such that that there is no more middle class for the entire country anymore due to the huge different in house prices and job pays (ypes of jobs). It's gotten even widers than the historical rural/urban ratios.

I'm wondering if this is a good thing or a bad thing? Or just neutral?

If things seek money, and moeny is less evenly distributed than before, then services will become more imbalanced in the US. The federal government is a force that attempts to rebalance, but are we getting to the tipping point where the amount of money fed uses is too small for the reality (pace of migration) ?

I think the lifestyle and expectations of today's middle class has adjusted compared to what was deemed a middle class lifestyle a generation ago. Years ago you put 20% down, today many put 10% or less down. Today you have 30 year terms and ARM loans. Also the size of homes built recently are much bigger with more bedrooms and bathrooms. The features/amenities in these homes are also more grandiose. A generation ago many families only had one vehicle. Some of that was because the husband went to work while the wife was a homemaker. However, there were some families where both parents worked and the norm was still to share the vehicle. Sharing a vehicle even if the wife was a stay at home mom living a middle class life today would be seen almost universally as unacceptable. Daycare costs are a huge financial blow today that didn't exist in generations prior. Vacations also tend to be more extravagant today. Going to the shore/lake was the best many middle class folks could do. Today middle class folks are taking all inclusive cruises, Disney, some overseas travel, etc.

However, many will simply not address the elephant in the room. Most middle class folks spend too much money and live above their means. Many of their financial wounds are self inflicted. The stagnant wages / income inequality argument only holds so much water. It's a problem no doubt but many are compounding the issue by using credit (debt) to supplement a lifestyle in which they do not have the income to effectively service their debts. This is what makes a solution to the problem so difficult. On one hand it can be argued that government policy needs to be more proactive but on the other hand there are a lot of different choices middle income folks could make to lessen their financial stress.

[sv2007]

pflyers,

Yes, I too think people are spending more of their income on luxury today than , say, when I was growing up. But, that's just how people spend money, perhaps more foolishly than a generation ago.

So, if I understand you correctly, you think the defintion of middle class (ownership of things, e.g. 20% of small house) has changed. Did you have in mind a certain income level?

[Fishindude77]

The problem with the term "middle class" is there is no true definition. Most of us would classify ourselves middle class, and I'll bet if you did a poll most would think anybody earning 50% more them them is upper class, and anybody making 50% less is lower class.

You can live within your means at many income levels. I've got a few friends that do fine on $30,000 per year and know some that earn $200,000 in debt to their eyeballs.

[phantom]

I question whether or not cost of living was ever closer than it is right now in various parts of the US. I wouldn't be surprised if the gap has grown, but I don't recall ever seeing any data on such a trend. But, I agree that there is definitely a large variance today.

In general, I don't think it's a good or bad thing that some places cost more to live than others. Nor do I think it's good or bad that salaries are higher in some places than in others. The differences create advantages to living in certain places at certain times in one's life. But, since most people are mostly free to move where they like, I don't think that's much of an issue.

For the most part, salaries and cost of living are closely linked. When people have higher salaries, they can pay more for things and drive prices up, and when prices are up, people won't live places where they can't earn enough to pay those prices. But, salaries and living costs don't go up at the same speed. You might find a new job in another city paying 50% more, where it costs 70% to buy a small house and 60% more to buy a large house, while groceries cost 10% more and restaurants cost 80% more. Whether or not a move for a new job is going to put one ahead or behind financially depends on the lifestyle choices a person makes.

I live in a fairly low cost of living area. Sometimes I fantasize about living in a higher cost of living area where I would have a higher income and tech gadgets would cost a lot less relative to what I make. After all, a new iPhone costs me the same amount it costs someone in Silicon Valley. Then I remember that the 66% equity I have in my house could drop down to about 20%, and that makes me happy to stay put.

Things definitely get screwy when we start talking about national policy. How do you set a minimum wage high enough that someone living in a big city could live on it without forcing business in small towns to overpay for labor? What should the standard deduction or lowest income tax bracket be when it takes a drastically different income to live in different parts of the country?

[disneysteve]

How do you set a minimum wage high enough that someone living in a big city could live on it without forcing business in small towns to overpay for labor?

The answer is you don't. You set a base minimum and let local municipalities adjust it accordingly, which is exactly what exists today. The federal minimum wage is $7.25 but depending on where you are, it may actually be as high as $10.50. D.C. is set to go to $11.50 on July 1. Why? Because $7.25 in D.C. wouldn't cut it but in rural PA, it's entirely different.

[Nika]

The answer is you don't. You set a base minimum and let local municipalities adjust it accordingly, which is exactly what exists today. The federal minimum wage is $7.25 but depending on where you are, it may actually be as high as $10.50. D.C. is set to go to $11.50 on July 1. Why? Because $7.25 in D.C. wouldn't cut it but in rural PA, it's entirely different.

Ah, but for the argument against the minimum wage to make sense, all assistance to people who make minimum municipal wage should be cut at the amount that adds up to 40 hours a week. The system we have right now, is that we are subsidizing corporations through personal welfare assistance, as pretty much most of these minimum wage workers are on one form of a assistance or the other, this is a business model of corporate giants like wallmart and mcdonalds. Pay below survivable wage and have the government pick up the slack and see to basic needs. If federal money are being funneled to the states for these assistance programmes, federal government should definitely have a say in this matter.

[Nika]

I live in a fairly low cost of living area. Sometimes I fantasize about living in a higher cost of living area where I would have a higher income and tech gadgets would cost a lot less relative to what I make. After all, a new iPhone costs me the same amount it costs someone in Silicon Valley. Then I remember that the 66% equity I have in my house could drop down to about 20%, and that makes me happy to stay put.

Regarding the equity point - if you live in a HCOL area during your prime working years, and earn enough to afford to buy, you can pay your property off during those years. So while the equity (as a percentage of your purchase price) would be accumulated slower, you will have much more of it in total dollars when you are no longer working. That would allow you to move to a LCOL with a much bigger nest egg.

For example, if we chose to sell our Bronx co-op, we could buy a really nice house in most areas of this country and have 100% equity right now. So are we ahead or behind? Depends how you look at it.

[dawnwes]

http://www.pewresearch.org/fact-tank/2015/12/09/are-you-in-the-american-middle-class/

This poll came up when I googled.

I played with it. For our family of 5, middle class is considered anywhere from 60,000-170,000. To me that is a HUGE range.

[phantom]

The answer is you don't. You set a base minimum and let local municipalities adjust it accordingly, which is exactly what exists today. The federal minimum wage is $7.25 but depending on where you are, it may actually be as high as $10.50. D.C. is set to go to $11.50 on July 1. Why? Because $7.25 in D.C. wouldn't cut it but in rural PA, it's entirely different.

That being the case, I'm not sure why there should exist a base minimum wage at all. Why should law-makers from D.C. and other places with higher minimums have any say in what business owners in rural PA pay their workers? I'd rather federal law-makers set as few income/cost of living based numbers as possible.

[pflyers85]

Ah, but for the argument against the minimum wage to make sense, all assistance to people who make minimum municipal wage should be cut at the amount that adds up to 40 hours a week. The system we have right now, is that we are subsidizing corporations through personal welfare assistance, as pretty much most of these minimum wage workers are on one form of a assistance or the other, this is a business model of corporate giants like wallmart and mcdonalds. Pay below survivable wage and have the government pick up the slack and see to basic needs. If federal money are being funneled to the states for these assistance programmes, federal government should definitely have a say in this matter.

The problem is if you set the minimum wage too high you will price certain people out of work. Where are those who are priced out of work going to turn for assistance? That's right, the government. Not to mention that there are many minimum wage jobs out there today that no matter how proficiently performed can not yield enough value added labor to justify a wage that would be deemed livable to avoid government assistance.

Bottom line is you can't bypass the laws of supply and demand and increase purchasing power with the stroke of a pen.

[phantom]

Regarding the equity point - if you live in a HCOL area during your prime working years, and earn enough to afford to buy, you can pay your property off during those years. So while the equity (as a percentage of your purchase price) would be accumulated slower, you will have much more of it in total dollars when you are no longer working. That would allow you to move to a LCOL with a much bigger nest egg.

For example, if we chose to sell our Bronx co-op, we could buy a really nice house in most areas of this country and have 100% equity right now. So are we ahead or behind? Depends how you look at it.

I think you're right in the case of a lot of HCOL areas. If the amount you pay in property taxes and interest on your mortgage is going to be a similar percentage of your income no matter where you live, you're likely better off in a higher income area. More generally, if the amount of money you can save (equity you build in your house combined with retirement savings and other investments) is going to be a similar percentage of your income no matter where you live, living somewhere you can earn a higher income definitely puts you ahead financially.

Where I think it gets tricky is when cost of living doesn't go up at the same speed as income. A recruiter from Boston happened to contact my husband a few months back. We have non-financial reasons for not choosing to move to Boston. But, it makes for an interesting comparison with Pittsburgh, where we currently live.

The job in question payed 160% of my husband's current salary, so let's assume my husband an I could both find jobs paying 160% of our current salaries in Boston. Payscale.com claims the cost of living in Boston is 200% the cost of living in Pittsburgh*, so let's also assume my husband and I would see our expenses double in Boston. Could we save more money by moving to Boston?

Let's call our Pittsburgh salaries X. If we currently save** 25% of X, which means we spend 75% of X. Then in Boston we'd spend 150% of X, which means we'd only be able to save 10% of X. On the other hand, if we currently save 50%, our savings could jump to 60% of X in Boston.

So, the way I see it, whether or not a person (or family) is better living in a specific HCOL area over a specific LCOL area, depends on two factors: cost of living increase vs. salary increase and current savings rate. Two different people considering the same two areas could come to different conclusions about which place makes more sense financially depending on how the location impacts pay in their fields and the costs of things they tend to spend money on.

* I'm pretty sure it would cost my husband and I less than 200% of what it costs us to live in Pittsburgh to live in Boston. The PayScale number is largely influenced by the assumption that Boston housing prices are 4x Pittsburgh housing prices, and houses in Boston that appear comparable to our house look like they'd only be twice as expensive. But, I'm going with 200% anyway because it makes for easier math.

** Here I'm considering any type of increase to net worth, including paying down a mortgage, to be saving. For this to work, I have to assume cost of living does not include the principal portion of a mortgage payment. Since I'm mostly making up my example numbers, I think I can get away with this.

[Singuy]

I don't think HCOL are justified with the pay you get.

My house in NYC or Cali would be around 4-5 million dollars. My income will go from 130k/year to 150k/year, but my house increased by 8x. I wouldn't be able to afford the interest and property taxes alone with this income bump.

So if you are comparing apples to apples, I don't understand why anyone would stay in a HCOL.