The middle class is on the decline across the wealthiest countries in the world and the shift is hitting the youngest generations hardest, according to a new report published by the Organization for Economic Cooperation and Development (OECD).
Today, just 60% of millennials (those born between 1983 and 2002) are considered middle-class, compared to 70% of baby boomers (those born between 1943 and 1964) when they were in their twenties, according to the report, "Under Pressure: The Squeezed Middle Class." Worldwide, the share of households considered middle-class has slipped from 64% in the 1980s to 61% today.
The report, which analyzed the 36 largest economies in the world, defines the middle class as those earning between 75% to 200% of the median national income. In the U.S., that translates to annual earnings of between $23,416 and $62,442 for a single worker.
Income inequality is a driving factor, the report says. It explains that while average earnings have stagnated or barely risen in developed nations over the past 30 years, the cost of living has increased dramatically, while jobs have become less stable. At the same time, the richest households are accumulating even more wealth.
"Current findings reveal that the top 10% of in the income distribution holds almost half of the total wealth, while the bottom 40% accounts for only 3%," the OECD reports.
As the rich get richer, in other words, the middle class is hollowing out.
Although the middle class makes up more than half of the population of OECD countries, it is shrinking. In fact, "since the baby boomer generation, the middle-income group has grown smaller with each successive generation," the report notes.
Because of that, young people are carrying increasing amounts of debt and being priced out of the housing market.
That's due, in part, to income stagnation. Median wages grew by an average of 0.3% per year between 2007 and 2017, according to the report, compared to more than three times that between the mid-1980s and mid-1990s.
Meanwhile, the cost of living continues to increase. Housing costs, in particular, account for a larger share of a middle-class family's budget. Home prices have grown "twice as fast as inflation and one-and-a-half times faster than the household median income," per the report.
Housing also accounts for more than one-third of a family's spending, compared to just a quarter in 1995. Health care and education costs have also outpaced inflation, particularly in the U.S.
This has left many in the middle class struggling to pay their bills day-to day: More than 20% of middle-income households spend more than they earn, the report says.
Adults aged 18 to 29 may feel the squeeze most, thanks to the combination of rising costs and low wages: Those factors can make it difficult for them to pay off loans and save for the future.
They are saving less than in the past and going further into debt, which leaves more people on the verge of falling out of the middle class, the report says. Job insecurity is also on the rise, it notes, with one in six jobs is currently at risk of being automated.
The shrinking of the middle class means that fewer millennials are able to afford the same opportunities that baby boomers did at their age, such owning a home and pursuing higher education.
"The middle class used to be an aspiration. For many generations it meant the assurance of living in a comfortable house and affording a rewarding lifestyle," reads the report. "However, there are now signs that this bedrock of our democracies and economic growth is not as stable as in the past."
The report's findings echo those of Alissa Quart, executive director of the Economic Hardship Reporting Project and author of the recently released book, "Squeezed: Why Our Families Can't Afford America." In an interview with CNBC Make It last year, Quart said being middle class used to be equated with stability. Now, it "implies insecurity."
And young people in particular are struggling, she pointed out. "Stop blaming yourself and start blaming the system, or start blaming the deeper causes of your economic fragility and instability," she said. "There are forces that are constructed against you, everything from your taxes to whether you can have job security."
The OECD recommends a few systematic and policy changes to help reverse the economic trends, like building more affordable housing, encouraging collective bargaining, designing better paid leave policies to boost female labor participation and more aggressively taxing capital and capital gains.
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