Part 2 of "The Myth of Middle-Class Security" Series

The Squeeze: How the Middle Class Got Boxed In

Over the past four decades, a combination of wage stagnation, rising costs, and shifting employment structures has redefined what it means to be middle class. This period of gradual economic change has limited upward mobility and reduced financial stability for many working households.

This post outlines key factors that have contributed to the current economic squeeze.

Wages Stagnated While Living Costs Increased

Since the 1970s, labor productivity in the U.S. has risen significantly. Between 1979 and 2023, productivity increased by more than 60%. However, hourly compensation for most workers grew by only 17% when adjusted for inflation (Economic Policy Institute, 2023).

At the same time, core living expenses — including housing, healthcare, childcare, and higher education — grew at a much faster pace. In previous decades, a single income could often support a household. Today, many dual-income households still face financial strain.

This growing disconnect between income and cost of living has reduced the purchasing power of wages and increased financial pressure across income levels.

Debt Became a Substitute for Income Growth

To maintain household spending in the face of slow wage growth and rising costs, many Americans turned to credit.

• In 2023, total U.S. household debt reached $17.3 trillion (Federal Reserve Bank of New York).

• Credit card debt surpassed $1.1 trillion, with average annual percentage rates (APRs) near 21%, the highest recorded.

• Student loan debt totaled $1.6 trillion, disproportionately affecting younger generations.

Debt became a common financial tool — not only for large purchases but also for covering everyday expenses. However, reliance on borrowing can reduce long-term financial security and increase exposure to interest-related costs.

Retirement Benefits Declined

In earlier decades, many jobs offered defined-benefit pensions — guaranteed retirement income funded by employers. These plans have become increasingly rare. By 2020, only 15% of private-sector workers had access to a traditional pension, down from over 60% in the early 1980s (Bureau of Labor Statistics, 2021).

In their place, 401(k) plans became the norm — shifting responsibility for retirement savings to individual workers. However, nearly half of Americans aged 55–64 have no retirement savings at all (Federal Reserve, 2023).

During the same period, the gig economy expanded. Many workers now engage in freelance, contract, or app-based work, often without access to employer-sponsored benefits or long-term job security.

Asset Inflation Increased Wealth Gaps

While wage growth was slow, asset values — including housing and stocks — rose substantially. This trend widened the wealth gap between households with existing investments and those without.

• From 2010 to 2023, home prices in many metro areas more than doubled.

• The top 10% of U.S. households now own over 70% of all stock market wealth (Federal Reserve, 2023).

Households that owned assets benefited from appreciation, while those without faced rising barriers to entry, particularly in housing. This contributed to a growing divide in wealth accumulation across income groups.

Future of Retirement Programs

Social Security has long served as a baseline retirement safety net. However, according to the Social Security Board of Trustees, the program’s trust fund is projected to be depleted by 2033. Without legislative reform, benefit payments could be reduced by 20–25% (SSA, 2023).

This potential shortfall will impact workers nearing retirement as well as younger generations currently contributing to the program.

Summary

Key structural shifts have reshaped the financial position of the American middle class:

• Wage growth has not kept pace with rising expenses.

• Debt has become a widespread tool for managing shortfalls.

• Traditional employment benefits — including pensions — have declined.

• Asset inflation has disproportionately benefited those already holding wealth.

• The future of federal retirement programs faces uncertainty.

It’s not one policy or one politician that boxed in the middle class—it’s the cumulative effect of four decades of economic drift. A new reality is here, and understanding how it formed is the first step toward building something stronger.

Up next:
Generations and the Gap: Why Financial Security Isn’t a Level Field
A look at each generation’s opportunities and adversities — and how those conditions shape their financial outcomes today.