Asset Building and the Shrinking Middle Class

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Brian Dabson

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Brian Dabson, Research Fellow at the School of Government, focuses on community and economic development, community and regional resilience, and entrepreneurship.

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The shrinking middle class is a continuing theme in the political discourse this election season. This comes as no surprise because what it means to be middle class is at the heart of the American Dream.  As the White House Task Force on the Middle Class led by Vice President Biden noted, being middle class is less to do with income and more about aspirations.  Middle class families aspire to home ownership, a car, college education for their children, health and retirement security, and occasional family vacations.

The challenge is that income stagnation has made it harder for families to keep up with the spiraling costs of health care, college tuition, and housing. College tuition and fees for four year public colleges nationally have increased at four times the rate of inflation. Although, the well-documented return in future wage gains are considerable, the immediate reality for many graduates can be crippling student loan debt. Similarly, personal health care costs have grown by three times the rate of inflation, although health outcomes in the United States lag behind other developed countries.

An expanding middle class is a critical economic generator creating large scale demand for goods and services, which means more jobs, more opportunities for those aspiring to be middle class – the working poor and those near the bottom of the economic ladder. It is also means more investment opportunities for those with capital, for entrepreneurs, and for advocates for long-term investment in education and infrastructure.  Everyone wins.  But the shrinking of the middle class, brought about by the decline in the number of well-paid manufacturing and government jobs and the depressed wages in the retail and service sectors, means everyone loses.

For many low-income people, the paths to realizing the aspirations associated with being middle class are sharply narrowed or even cut off altogether.  If you are born into a low-income family in a distressed community, you are more likely to be stuck there for the rest of your life.  This is a finding from a nationwide study of economic mobility by the Pew Center on the States.  This study measured the extent to which Americans moved up or down in their earnings and on the economic ladder relative to their peers over a ten-year period. If you live in Maryland, New Jersey or New York you will find consistently higher upper mobility and lower downward mobility compared to the nation as a whole.  On the other hand, if you live in Louisiana, Oklahoma and South Carolina – and to some extent in North Carolina and several other southern states, you will find consistently lower upward mobility and higher downward mobility.  The Pew researchers suggested that the main reasons for these differences were levels of post-secondary attainment, of personal savings and assets, and of neighborhood poverty.

This was the context I provided to a luncheon gathering of the North Carolina IDA Collaborative in Raleigh on August 24th. Community developers, bankers, local government officials, and others gathered to hear a panel discuss the topic, Beyond Trickle Down: How Inclusive Community Development Strategies Can Engage and Benefit Low-Income Residents. I noted that from a community development perspective, many of the broad socio-economic trends, such as globalization, technological advances and applications, the growing divide between rich and poor and their geographical and racial implications, appear to contribute to the shrinking of the middle class, but are largely out of our control. The current political debates focus on the pros and cons of trade agreements, immigration, regulation, law and order – but the ongoing international economic trends continue to bring benefits to some and hardships to many others.  At the community level, we can mobilize and come together to see changes in public policy but the process is painfully slow and the outcomes far from certain. Communities in distress cannot afford to wait for generation after generation for things to change.  They must position themselves to better adapt to these economic changes – to be more resilient and to take ownership of what they can control.

As someone who has worked in the area of community and economic development on both sides of the Atlantic for four decades, I offered my to-do list for any community, whether inner city or rural, wishing to lay the foundations for future economic mobility and an expanding middle class:

  • Building individual skills and encouraging creativity – the importance of education, skills development, willingness to be entrepreneurial, becoming and staying healthy
  • Increasing financial literacy – helping people save, imagine a better financial future
  • Creating and supporting new leaders – vibrant community engagement – building social capital
  • Recognizing and celebrating the value and positive identities of community members
  • Building capacity in the community to plan and get things done – the very essence of resilience
  • Building political connections, forging links beyond the community to people and organizations with knowledge, experience, resources – avoid isolation
  • Protecting natural assets – taking care of nature, water, air, environment, trees
  • Improving infrastructure and building stock – roads, water and sewers, housing stock, ability to withstand natural hazards

These are neither new nor particularly innovative but they remain relevant and essential action steps for local governments and nonprofit organizations. For further reading on this topic, see The Need for Place-based Interventions in Economic Development on economic mobility and the online guide to asset-building programs for communities and individuals on the economic margin.

blank Brian Dabson (5 Posts)

Brian Dabson, Research Fellow at the School of Government, focuses on community and economic development, community and regional resilience, and entrepreneurship.


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