Middle-class squeeze

The middle-class squeeze is the situation where increases in wages fail to keep up with inflation for middle-income earners leading to a relative decline in real wages, while at the same time, the phenomenon fails to have a similar effect on the top wage earners. People belonging to the middle class find that inflation in consumer goods and the housing market prevent them from maintaining a middle-class lifestyle, making downward mobility a threat to aspirations of upward mobility. In the United States for example, middle-class income is declining while many goods and services are increasing in price, such as education, housing, child care and healthcare.

Former U.S. Speaker of the House Nancy Pelosi used the term in November 2006 to provide context to the domestic agenda of the U.S. Democratic Party. The Center for American Progress (CAP) issued a report of the same title in September 2014. However, variations on the theme have been used by politicians attempting to describe the financial challenges facing the middle class and to appeal to the middle class voter for much longer.

The term "squeeze" in this instance refers to rising costs of key products and services coupled with stagnant or declining real (inflation adjusted) wages. The Center for American Progress (CAP) defines the term "middle class" as referring to the middle three quintiles in the income distribution, or households earning between the 20th to 80th percentiles in income. CAP reported in 2014: "The reality is that the middle class is being squeezed. As this report will show, for a married couple with two children, the costs of key elements of middle-class security—child care, higher education, health care, housing, and retirement—rose by more than $10,000 in the 12 years from 2000 to 2012, at a time when this family’s income was stagnant." Further, CAP argued that when the middle class is struggling financially, the economy struggles from a shortfall in overall demand, which reduces economic growth (GDP) relative to its potential. The goal of addressing the middle class squeeze includes: "Having more workers in good jobs—who have access to good education; affordable child care, health care, and housing; and the ability to retire with dignity."

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