The American middle class which has long been recognized as the most affluent in the world, now lose that distinction. According to New York Times, citizens of other developed countries have received considerably larger raises over the last three decades. Figures shows that after-tax middle-class incomes in Canada now appear to be higher than in the United States; in addition, the poor in much of Europe earn more than poor Americans.
The findings have been tricky because most commonly cited economic statistic, such as per capita gross domestic product, continue to show that the United States has maintained its lead as the world’s richest large country. However, those numbers reflect only the average level. We may need to know more about the variance in order to capture a whole picture of the income distribution. The recent data shows that a large share of wealth flow into the high-earning households, leading to a broader variance of the rich and the poor.
Many commented that the tax system in the United States was cutting the middle-class and that the tax relief for middle-class and small businesses show that the US government has realized this. It would be interesting to see whether the tax relief will actually be effective.
Why is there a weak income performance in the United States? Firstly, the educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs. In the Labor Economics class, we learnt that there is a positive relation between education and earnings. More educated people tend to earn more on average compare to those with less education. Therefore, if people in the United States do not get as much as education attainment as other industrialized countries, it is very likely that the average earning in middle class also fall behind them.
A second reason is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Also, as taught in Labor Economics class, top executives make substantially more money in the United States than in other wealthier countries. This also explain why the income gap is quite large in the United States because the spread is increasingly larger once reaching a certain level in the hierarchy.
The last reason is that governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low-and-middle-income households by redistributing income. It would be necessary for the United States to think over the benefits of the take-home pay because many commented that the tax system has been cutting the middle class domestically.