2008 Oxford Business &Economics Conference Program
ISBN : 978-0-9742114-7-3
RISING ECONOMIC INEQUALITY AND CLASS DIVISIONS IN AMERICA: FROM A
MASS TO A CLASS MARKET
Y. Datta
Ph. D.--State University of New York at Buffalo
Professor Emeritus
College of Business Administration
Northern Kentucky University
Highland Heights, KY 41099
7539, Tiki Av.
Cincinnati, OH 45243
USA
Tel :(513) 984-1032 [Home]
E-Mail: datta@nku.edu
A paper accepted for presentation at the Oxford Business & Economics Conference, to be
held in Oxford, England, June 22-24, 2008
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(Revised)
Table of Contents
RISING ECONOMIC INEQUALITY AND CLASS DIVISIONS IN AMERICA: FROM A
MASS TO A CLASS MARKET .................................................................................................. 1
ABSTRACT ................................................................................................................................... 5
INTRODUCTION ....................................................................................................................... 5
MIDDLE CLASS ON A PATH OF RELENTLESS ECONOMIC STAGNATION ....... 7
From One-Income to Dual-Income Family ............................................................................ 8
The Elusive “Middle Class Dream” ........................................................................................ 9
Massive Transfer of Economic Risk to the Middle Class ...................................................... 9
Changing Social Values Widen Economic Inequality ......................................................... 10
THE RICHEST ARE LEAVING EVEN THE RICH FAR BEHIND ................................... 12
Top Executives Replace Capital Owners at the Top of U.S. Income Hierarchy ........ 12
CEO Compensation Going through the Roof ...................................................................... 12
The “Class Matters” Study .................................................................................................... 13
The “Superstar” Model and the “Winner-Take-All Society”............................................. 14
Sharp Increase in Concentration of Wealth ......................................................................... 14
AN ECONOMIC CLASS STRUCTURE OF AMERICA ...................................................... 16
The Poor ................................................................................................................................... 18
The “Near Poor” ..................................................................................................................... 18
The Traditional Middle Class ................................................................................................ 18
Upper Middle Class and Upper Class ................................................................................... 18
A SOCIO-ECONOMIC CLASS PROFILE OF AMERICA .................................................. 20
Where They Generally Shop? ................................................................................................ 22
The new middle-class consumer. ......................................................................................... 22
The ultra-economy segment................................................................................................. 22
The economy segment. ......................................................................................................... 23
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The Poor--“Survival” (“Bottom of the Pyramid”) ............................................................... 24
The “Near Poor”--“Just Making It” ..................................................................................... 25
The Traditional “Middle” Class: From “Keeping up with the Joneses” to “Good Quality
Public Schools in Suburbia” .................................................................................................. 27
The Upper Middle Class—“Cultured Affluence” ................................................................ 29
The Rich: Conspicuous Consumption” ................................................................................. 30
The Mega-Rich: “Masters of the Universe” and “Keeping up with the Gateses” ............ 32
“Keeping up with the Gateses.” ........................................................................................... 33
“Luxury goes undercover.” ................................................................................................. 33
“My boat is bigger than your boat.” .................................................................................... 34
Return of the butler and live-in servants............................................................................. 35
DISCUSSION .............................................................................................................................. 35
From a Mass to a Class Market ............................................................................................. 36
Mass Market was a Unifying Force in America ................................................................... 37
Sharpening of Class Divisions Causing Social Tensions ..................................................... 38
The Wealthy Isolating Themselves from Society ............................................................. 38
Upward Economic Mobility Stalled in America .................................................................. 39
A Matter of Equity .................................................................................................................. 40
Wages decoupled from productivity. ................................................................................... 40
Wages lag corporate profits. ................................................................................................ 40
Secretary pays a higher average tax rate than her billionaire boss. .................................. 41
CONCLUSION ........................................................................................................................... 41
REFERENCES ............................................................................................................................ 44
TABLE 1 ...................................................................................................................................... 49
Threshold Incomes of Top 5% American Families in 2005 .................................................... 49
TABLE 2 ...................................................................................................................................... 51
An Economic Class Structure of America ................................................................................ 51
TABLE 3 ...................................................................................................................................... 53
A Socio-Economic Class Profile of America ............................................................................. 53
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RISING ECONOMIC INEQUALITY AND CLASS DIVISIONS IN AMERICA: FROM A
MASS TO A CLASS MARKET
ABSTRACT
Here I have two objectives. First, I present empirical support for the argument
that economic inequality has sharply increased in America over the last three
decades. My second objective is to develop a socio-economic class profile of America.
I first develop the current economic class structure of America, using income data. This
analysis reveals three broad groups: the lower class (the bottom 40%), the middle class (40-95th
percentile), and the upper class (the top 5%). A further refinement ultimately yields a total of six
economic classes (TABLES 1-2).
Next, building on the first step, I invoke Datta’s (1996) integrated framework of
market segmentation: a framework that provides a direct link to the resourcebased theory of strategic management.
Combining economic class with price-quality segmentation, I finally
present a socio-economic class profile of America that attempts to articulate the
life style of each class (TABLE 3).
INTRODUCTION
From 1942 to the mid-1970s, a “great leveling” of incomes occurred between classes in
America (Rasmus, 2007). Then, three decades later, the “hourglass of history was inverted” (p.
1). This “great leveling,” after a brief break from 1974-1978, turned out to be a “great reversal”
(p. 1). From the mid-1970s, until the present time, the income gap has again been getting wider,
as it was in the 1920s that led to the Great Depression.
Objective of This Paper
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In this paper my purpose is two-fold. First I try to present empirical support for
the assertion that economic inequality has sharply increased in America over
the last three decades. My second objective is to develop a socio-economic class profile of
America.
In the next section I present data showing that since 1973 median family
income has virtually remained s tatic, even when women have increasingly
joined the workforce.
Next, I make the case that the economic inequality—both in income and
in wealth--has reached such heights that the richest are leaving even the rich far
behind!
After that I present an economic class structure of America in which I
identify the following six main classes (TABLES 1-2):
The Upper Class I
The Mega-Rich (top .01%)
The Upper Class II
The Rich (top 0.1- .01)
The Very-Affluent (top 1-0.1%
The Affluent (top 5-1%)
Upper Middle Class (80-95th percentile)
Traditional Middle Class (40-80 th percentile)
The “Near Poor” (20-40 th percentile)
The Poor (the bottom 20%)
In the next section I present a socio-economic class profile of America
(TABLE 3). This profile is based on two factors: (1) the economic class
structure of TABLE 2, and (2) Datta’s (1996) integrated framework of market
segmentation.
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Finally, in the Discussion section, I raise several issues: that America has
gone from a mass to a class market ; that the mass market in the past was a
unifying force in America; that this sharpening of class divisions is causing
social tensions; that the wealthy are isolating themselves from society; and that
upward economic mobility is stalled in America. Finally, I raise the issue of
equity for the middle class.
MIDDLE CLASS ON A PATH OF RELENTLESS ECONOMIC STAGNATION
Even though the overall economy--and per-capita income--has been growing since 1973,
it has not helped the middle and lower classes. The median family income has practically
remained stagnant even when wives have increasingly joined husbands in the workforce. Based
on data from the U.S. Census Bureau, the median family income went up a mere 7%—from
$40,400 to $43,200 in 1996 dollars--over the 23-year period from 1973-1996 (Levy, 1998, p. 50).
During the same period, the U.S. gross domestic product (GDP) grew at an average rate of 3.1%
per year1.
The median family income from 1997 to 2005 rose just 4% (in 2005 dollars) from
$54,056 to $56,194 (Economic Report of the President, 2006, TABLE, B-33)2.
Looking at a somewhat different time period from 1979 to 2003, the results were not
much different. The median family income rose 12.6% during this 24-year time period (Frank,
Based on data from Table B4, "Economic Report of the President, 2006.”
http://www.gpoaccess.gov/eop/tables06.html.
1
2
During this nine-year period the U.S. GDP grew at an average rate of 3.3% (see footnote 1 for source).
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2007, chap 2). However, while the income of the bottom quintile went up a measly 3.5%, the
top 20% gained 45.7%, and the top 5% had a raise of 68% (ibid).
The real wages of production or non-supervisory workers in the private sector fared
much worse. They declined 16% between 1973 and 2006 ("Economic Report of the
President," 2007, Table B-47). [http://www.gpoaccess.gov/eop/tables07.html].
Warren (2007: 39) looked at the wages of fully-employed males over the period 19712003. She found that today’s American male earns $800 less per year than his father did more
than thirty years ago.
Krugman (1997) characterizes the period of 1947-73 as the “good” years which looks like
an all-American “picket fence"--representing a prosperity that was widespread. In contrast, the
1974-94, a “troubled” period, projects a radically different view: "a staircase, with some of
the steps below ground level" (pp. 21-22)1.
From One-Income to Dual-Income Family
In the 1950s the median family income largely represented the earnings of one working
spouse (Barlett & Steele, 1992: xiv). A generation ago, an average working wife earned only a
quarter of a family’s income (Warren & Tyagi, 2003: 29). Then many families regarded the
income earned by women as mere “pin money” (ibid).
By the mid-1980s, more than two-thirds of all young wives were working (Coontz,
1992: 266). In 1976, a married woman was more than twice as likely to stay at home to take
1
His comments are based on family income data from the U.S. Census Bureau.
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care of her children, rather than work full time (Warren & Tyagi, 2003: 30). In 2000, she was
twice as likely to work full time than stay at home (ibid)1.
The Elusive “Middle Class Dream”
Levy (1988: 206) says that any definition of a “middle-class income” is arbitrary. One
way to visualize middle class is the minimum annual income necessary “to fulfill the middle
class dream,” i.e., a middle-class standard of living. He points out that, prior to 1973, when
incomes were going up this purchasing-power definition was identical to being in the middle of
the income distribution. However, from 1973 the two definitions started to diverge, and
occupying the middle of the distribution no longer ensured a middle class standard of living.
Levy’s (1988: 206) estimate to “fulfill the middle class dream” in 1984 was at-least
$30,000. He adds that the percentage of a family earning $30,000 or more (in 1984 dollars)
declined from 51% in 1973 to 45% in 1984, even though an increasing proportion of wives were
entering the labor force, and an increase in the proportion of young workers who postponed their
marriage. In 2005, this percentage had dropped to 30%.2
According to the latest survey, the “American Dream”--the middle class standard of
living--means “having a good job, being able to retire in security, owning a home, having
affordable health care, and a better future for [our] children (Crain & Kalleberg, 2007: 4).
Massive Transfer of Economic Risk to the Middle Class
1
At present 54% of women are working full time (http://www.womenemployed.org/index.php?id=20).
While an income of $30,000, or more, could fulfill a family’s “middle class dream” in 1984, a family would need
an income of $56, 391—or more--(inflation-adjusted) in 2005. In 2005, only about 30`% of families were making
an income of $56, 391 or more. Source: U.S. Census Bureau Table FINC-06—Part 1 for 2006:
(http://pubdb3.census.gov/macro/032006/faminc/toc.htm).
2
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The number of American workers, and their dependents, who do not have health
insurance has been going up steadily over the past twenty five years, as corporations have
increasingly curtailed their coverage. During a two year period over 80 million adults and
children find themselves at some time without the protection against catastrophic health costs
(Hacker, 2007: 67).
About twenty five years ago 83 % of medium and large firms provided traditional
“defined-benefit” pension plans that gave their employees a fixed benefit for life. Today, less
than one third of the companies are doing so (Hacker, 2007: 67).
Hacker (2007: 68) says that this dramatic shift in coverage is being offered as a “nirvana
of individual economic management.” This is the same idea championed by President George
W. Bush in his seductive call for an ‘ownership society.’ Skeptics say that this would imply
YOYO: “you are on your own” (Lawrence, 2005).
In response to this development, Hacker (2007: 68) has this to say:
[This is a] massive transfer of economic risk from broad structures of insurance,
both corporate and governmental, onto the fragile balance sheets of American
families. This transformation, which I call “the great risk shift,” is the defining
feature of the contemporary economy, as important as the shift from agriculture to
industry a century ago (italics added).
Changing Social Values Widen Economic Inequality
Long-term demographic changes, triggered by social movements and changing social
values1, have also added significantly to the widening of economic inequality in America. These
changes include divorces, marital separations, births out of wedlock, and increasing age at first
marriage. Thus, this change in social mores has led to a shift from married-couple households to
1
McLanahan (2007) argues that the lower rate of marriage among less educated adults is accounted for by both
economic factors and values.
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single-parent families and nonfamily households. Since single-parent and non-married-couple
households tend to have lower income--compared to married-couple households--the swelling of
their ranks has further added to the growing income inequality1.
A statistic commonly repeated in the news media is that one of two American marriages
ends in a divorce. However, this figure is based on an erroneous calculation. Research based on
a new method, now preferred by social scientists, suggests that the rate has never been higher
than 41% (Hurley, 2005).
The American divorce rate tripled between 1960 and 1982 (Coontz, 1992: 3). However,
it peaked in 1981 and is now at the lowest level since 1970 (Crary, 2007).
Divorce as a social phenomenon has had a devastating effect on divorced women—and
the children in their custody—many of whom fall out of the middle class: an important factor in
the “feminization of poverty” (Phillips, 1993: 30).
The Economist is reporting another disquieting trend. Whereas, the divorce rate among
the more educated--and more affluent--Americans has been dropping, it has been going in the
opposite direction among the poor and those with low levels of education. And this is further
fueling income inequality in America (The frayed knot, 2007).
With the widespread entry of women in professional ranks, following the feminist
movement, a new marriage pattern emerged sometime ago. In the past it was common for an
executive to marry a pretty secretary, or for a doctor to marry a nurse. Now an executive is
much more likely to marry another executive or a professional. Doctors, too, are now marrying
1
(http://www.census.gov/hhes/www/income/midclass/midclsan.html).
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other doctors, not nurses. This new marriage pattern has created a highly affluent professional
family—typified by yuppies—thus further inflating income inequality (Ehrenreich, 1986).
THE RICHEST ARE LEAVING EVEN THE RICH FAR BEHIND
Although it is no secret that the gap between the rich and everyone has been getting
wider, but the extent to which the richest are leaving even the rich way behind is not widely
known (Class matters, 2005, chap. 12).
Top Executives Replace Capital Owners at the Top of U.S. Income Hierarchy
Piketty and Saez1 (2007) have conducted a massive study of income inequality in
America from 1913-2002. They report that in 2000 the income of top 1% of families—including
both the top executives and capital owners—went back to its very high levels around the time of
World War II. At the end of 2000 their share was close to 17% (Piketty, 2007: 11-12).
However, they point out that this very large increase since then “is not due to the revival
of top capital incomes, but rather due to the very large increases in top wages (especially top
executive compensation).” So, during the twentieth century, the working rich—top executives—
have replaced the top capital owners--the ‘rentiers’—at the pinnacle of the U.S. income
hierarchy (Piketty, 2007: 11; italics added).
CEO Compensation Going through the Roof
The compensation of American CEOs has virtually been going through the roof. In 1973,
the CEOs of America's largest companies earned 35 times as much as the average worker; by the
mid-1990s they were earning 200 times as much (Hacker, 1997, chap. 6). A more recent study
1
This study was originally published in the Quarterly Journal of Economics (Feb. 2003) under the title: Income
Inequality in the United States: 1913-1998.
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has found that, for every one dollar earned by a blue-collar worker, an American CEO’s pay
has gone up from $42 in 1980, to $85 in 1990, and $531 in 2000 (Teacher, 2005).
The above information seems to be consistent with the findings of Piketty & Saez
(2007) reported above.
The “Class Matters” Study
The New York Times published a series of articles, which were later published as a
paperback in 2005, titled: “Class Matters.” One objective of the authors was to study how the
incomes—based on federal income tax returns--of the very richest have changed over the years,
and how the Bush tax cuts will affect them.1

The top 0.1% (one thousandth) taxpayers--145,000 in number--had a minimum
income of $1.6 million, and an average income of $3 million in 2002—a figure
two and a half times the group’s average income in 1980 (inflation adjusted).

The income earned by this group more than doubled since the 1970s. In 2000, its
share of the total U.S. income exceeded 10%--a level last observed in the 1920s.

However, it is the top .01% (one ten-thousandth) of the taxpayers—about 14,000
families then—that made the most dazzling gains in income. Each family earned
$5.5 million or more in 2002.
The study calls the top .01% as the hyper-rich. Over the last three decades, they have
been the biggest winners in an extraordinary transformation of the American economy. One way
to gauge how gargantuan their income gains have been is to compare them with, say, the lower
90%. During 1950 to 1970, the top .01% earned a “measly” $162 extra for every dollar earned
1
The U.S. Treasury Department does not differentiate the incomes of those within the top 1%. So, the authors relied
upon a computer model of the department. They had their income projections reviewed by experts from various
organizations—including the Treasury—who found the projections reasonable (Class matters, 2005, chap 12).
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by the bottom 90%. But from 1990 to 2002, they pulled in a whopping $18,000 more than each
dollar earned by the bottom 90% (Class matters, 2005, chap. 12).
The “Superstar” Model and the “Winner-Take-All Society”
The entertainment and sports industries have traditionally been identified with the
“superstar” model where minor differences in performance result in huge differences in reward
(Krugman, 1994: 149). Frank and Cook (1996) argue that since 1975 or so America has become
a winner-take-all society, in which more and more people are competing for ever fewer and
bigger prizes. They suggest that this model has now permeated almost the entire economy, and
includes such areas as fashion, media, investment banking, the legal and medical professions,
higher education, and even management itself.
Sharp Increase in Concentration of Wealth
The pattern of income distribution indicated above is also reflected in the distribution
of wealth. The 1990s saw an explosive growth in millionaires and multimillionaires (Wolff,
2002: 3). Since 1995, according to the Federal Reserve Board, the number of millionaire
households doubled to more than eight million in 2003, and had climbed to 11 million in 2004
(Frank, 2007: 1-2). Wolff (2002: 8) states that wealth inequality was at a seventy year high in
1998. While the highest 1% of households owned 38% of total household wealth, the top 5%
controlled 59% (Multinational Monitor, 2003).
Wolff’s (2002: 2) comments below are noteworthy:
Examination of the data on wealth distribution leads to a disturbing
question: Is America still the land of opportunity? The growing
divergence between income distribution and wealth is even starker in
wealth distribution. Equalizing trends during the 1930s through the
1970s reversed sharply in the 1980s. The gap between the haves and
have-nots is greater now—at the start of the twenty first century—
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than at any time since 1929. The sharp increase in inequality since
the late 1970s has made wealth distribution in the United States more
unequal than it is in what used to be perceived as the class ridden
societies of northwestern Europe (italics added).
Wolff (2002: 36) has also made a comparison of wealth ownership between America
and industrialized European countries, Canada, and Japan. His conclusion is that “wealth
inequality in the United States is high by international standards” (italics added). He adds:
[B]oth income and wealth inequality have continued to increase in the United States in
the 1990s and that income inequality, in particular, has risen faster in the United States
in the 1990s than in other OECD countries leads one to believe that the U.S. continues
to remain today the most unequal country in terms of wealth (italics added).
In The New York Times income study (Class matters, 2005) discussed earlier, the
researchers also conducted a study of wealth. In 2001 there were 338,400 households that had
possessions worth more than $10 million--including homes, investments, and other assets. Since
1980 this group had grown about 15 times faster than the total number of households (chap 12).
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AN ECONOMIC CLASS STRUCTURE OF AMERICA
From the discussion in the previous section, it is clear that income--and wealth-inequality has sharply increased over the last three decades. While the middle class is getting
squeezed, the upper class has been prospering, so much so, that the richest are leaving even the
rich far behind!
Now it is time to pay attention to the development of a socio-economic class profile of
America. This is a two-step process. The first step is to develop an economic class structure.
The second step is to use this economic class structure as a springboard to fashion a socioeconomic class profile of America. We will concentrate on the first step in this section, and then
focus our attention on the second in the next section.
The U.S. Census Bureau publishes family and household1 income data which includes
both family and non-family households. This data shows income in quintiles. In addition, it also
includes data for the top 5% families and households. As we have seen in The New York Times
“Class Matters” study—based on federal income tax returns--this top segment severely masks a
vast degree of variation at the upper end. TABLE 1 provides just such a breakdown2.
-----------------------------------------Insert TABLE 1 about here
------------------------------------------Now I present an economic class structure of America in TABLE 2. The incomethreshold data up to the 95th percentile comes from the U.S. Census Bureau 2005 household
1
A household consists of a person living alone, related family members, or unrelated people who share the same
housing unit. This is in contrast to a family, which is a group of two people or more, related by birth, marriage, or
adoption and residing together (http://www.census.gov/population/www/cps/cpsdef.html).
2
The income data in Table 1includes capital gains which are a major part of the total income of this group. Adapted
from the Home Page of Prof. Saez (http://elsa.berkeley.edu/~saez).
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income data. Similar information for the top 5% comes from the federal income-tax returns data
from TABLE 1.
-----------------------------------------Insert TABLE 2 about here
------------------------------------------It is important to point out that the threshold income data in TABLE 2 is average for the
entire United States, and is not representative of large metropolitan areas where incomes are
much higher because of a higher cost of living. For example, for the year 2006, the threshold
income of each class up to the 95th percentile is about 30% higher in the Boston metropolitan
area than in the nation as a whole1.
TABLE 2 reveals three broad classes: Upper, Middle, and Lower. I have characterized
the bottom two quintiles as Lower Class, the 40-95th percentile as Middle Class, and the top 5%
as Upper Class.
The Upper Class is sub-divided into two groups: Upper Class I: “The Mega-Rich” (top
.01%), and Upper Class II (top 5-.01%). The latter is further sliced into three segments: top 0.1.01% : “The Rich”; top 1-0.1%: “The Very-Affluent;” and top 5-1%:“The Affluent.”
The Middle Class consists of two parts: the Upper Middle Class (80-95th percentile), and
the Traditional Middle Class (40-80th percentile). And the Lower Class, too, has two segments:
“Near Poor” (20-40th percentile), and The Poor (bottom quintile).
Now I explain below the rationale for this classification.
1
http://factfinder.census.gov/servlet/DTTable?_bm=y&-context=dt&-ds_name=ACS_2006_EST_G00_&mt_name=ACS_2006_EST_G2000_B19080&-CONTEXT=dt&-tree_id=306&-geo_id=01000US&geo_id=31000US14460&-search_results=31000US14460&-format=&-_lang=en.
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The Poor
Starting at the bottom, I have labeled the lowest quintile as “The Poor.” The lowest
income limit of the second quintile is $19,178, which is obviously the same as the highest limit
for the bottom quintile. This accords very well with the “Poverty Threshold 2005” figure of $19,
971 for a family of four, published by the U.S. Census Bureau1.
The “Near Poor”
Next, I have designated the second quintile as the “Near Poor,” a term used by Newman
and Chen (2007). They define the “near poor” as those with annual household incomes between
100-200% of the poverty line--between $20,000 and $40,000 per year--for a family of four (p.
236). The upper limit of the second quintile (the lower limit of the middle quintile), as shown in
TABLE 2, is $36,000, a figure that is not far from the top range of $40,000 mentioned above.
The Traditional Middle Class
I have called the third and fourth quintiles—40-80th percentile--as the “Traditional
Middle Class.” As TABLE 2 shows, the income of this group falls between $36,000 and
$91,705. The threshold (bottom level) of this class has already been determined by the upper
income level of the “Near Poor” class. As explained in the next section, I have defined 80th
percentile as the bottom income level of the Upper Middle Class. So the 80th percentile becomes
the top income level of the Traditional Middle Class by default.
Upper Middle Class and Upper Class
Juliet Schor (1998) says she considers the upper-middle class to be “the top 20% of
households, with the exclusion of the top few percent” (p. 12). A reasonable interpretation of the
1
http://www.census.gov/hhes/www/poverty/threshld/thresh05.html.
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term “exclusion of the top few percent” seems to imply a figure closer to the 95th percentile,
rather than say the 99th percentile (see discussion below), as more likely to be Schor’s view
regarding the top limit of the Upper Middle Class.
Classifying social classes is clearly a subjective process. So, it should not be surprising
that there is some disagreement about what constitutes Upper Class. For example, Phillips
(1993: 28) regards the top 1% as “Upper America.” Gilbert (2008: 13), using the Gilbert-Kahl
model, also classifies the top 1% as, what he calls, the Capitalist class. Unlike Schor, he has
extended the Upper Middle Class all the way to the 99th percentile. On the other hand, the U.S.
Census Bureau lumps the top 5% in a single group.
One way to address this problem is to analyze income of the groups in TABLE 1. As
underscored by the “Class Matters” study discussed earlier, the top .01 families (14,588) are
clearly in a league of their own. Their threshold income is almost six times that of the top 0.1%,
and 27 times that of the top 1%.1
So, I have named this group: “The Mega-Rich.”
Next is the top 0.1-0.01% group. Its threshold income is $1,722,926. Because this figure
is (well) above a million ($) I call this group: “The Rich.”
Next group is the top 1-0.1%. The threshold income level of this group is $350,501: a
figure way below a million ($). So, I have labeled this group: “The Very-Affluent.”
That leaves us with the top 5-1% group. Continuing to use the federal income tax data
(TABLE 1), we find that the top income level of this group is $350,501, and the bottom level is
If we use average income data from Prof. Saez’s website, the differences are even more dramatic. For example,
the average income of the top .01% is $26,340,290, which is about eight times the average income of the top 0.1.01% group.
1
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$140,125. However, the latter figure is too low. According to the Census Bureau household
income data (TABLE HINC-05) from TABLE 2, this figure is $166,000. But, as indicated in
footnote 3 of TABLE 2, a more appropriate source for this exercise is family income from Table
HINC-06. That figure is $184,500. So, we can accept $184,500-350,501 as a reasonable
estimate of the range of income of the top 5-1% group. I have called this group “The Affluent1.”
It is clear from the above analysis that the top 1% families can comfortably be classified
as members of the Upper Class. However, it is more difficult to include the top 5-1% group (9995th percentile) in the same category. Perhaps, a case could be made that this group has a better
fit as a member of the Upper Middle Class, as Gilbert (2008) has suggested.
How then do we resolve this dilemma? The primary source of income data for this study
comes from the U.S. Census Bureau, which has lumped the top 5% households into a single
basket. As stated above, Schor (1998), too, seems to lean toward the 95th percentile as the upper
limit for the Upper Middle Class. So, I have decided to include the entire top 5% as part of the
Upper Class.
A SOCIO-ECONOMIC CLASS PROFILE OF AMERICA
The readers can find a socio-economic profile of America in TABLE 3.
-----------------------------------------Insert TABLE 3 about here
------------------------------------------Using the economic class structure of TABLE 2 as a springboard, I have relied upon
Datta’s (1996) integrated framework of market segmentation to de velop TABLE
1
I have labeled the Upper Middle Class also “Affluent” (see TABLE 3).
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3. Contrary to the narrow, demand-oriented approach to market segmentation-- common in
marketing and planning literature--his work represents an integrated approach that includes both
the demand and supply sides. Another advantage of his fram ework is that it provides
a direct link to the resource-based theory of strategic management .
Invoking Datta’s (1996) framework, and combining social class with price-quality
segmentation, I have created a socio-economic class profile of America
(TABLE 3) that attempts to articulate the life style of each class. I have
outlined this profile below for each class:
Social Class
Percentile
Life-Style Profile
Top 0.01%
“Masters of the Universe
Upper Class I
The Mega-Rich
“Keeping up with the Gateses”
Upper Class II 1
The Rich
Top 0.1-.01%
The Very-Affluent
The Affluent
Top 1-0.1%
Top 5-1%
“Conspicuous Consumption”
Upper Middle Class
80-95 th percentile
“Cultured Affluence”
Traditional Middle Class
40-80 th percentile
From “Keeping up with Joneses”
to
“Good Public Schools in Suburbia”
The “Near Poor”
20-40 th percentile
“Just Making It”
The Poor
The bottom quintile
“Survival”
1
Under this class I have included only the sub-group labeled: “The Rich.” (top 0.1- .01%) in TABLE 3.
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(“Bottom of the Pyramid”)
TABLE 3 also indicates the type of retail stores where members of each class typically
shop. The reason I have included this information is because it can provide a simple overall
image of each class, and a realistic symbol of their life style.
Where They Generally Shop?
Before I present the socio-economic profile of each class, I will first discuss the subject
of where they generally shop1. Because of the vast amount of information I had to cram into
TABLE 3, I tried to make it as simple as possible. For example, in this table, I have identified
certain types of retail stores with a particular kind of social class. However, as the following
discussion shows, the reality is not so simple.
The new middle-class consumer. Silverstein and Fiske (2005) suggest that many
middle-class customers are willing to pay a substantial premium for goods and services that are
emotionally meaningful to them, and that “deliver the perceived values of quality, performance,
and engagement.” But in categories that do not appeal to them emotionally, “they become
bargain hunters” (inside jacket). The same middle-class customers who are trading up at
Victoria’s Secret are going on a “treasure hunt” at Costco (Silverstein, with Butman, 2006, inside
jacket).
The ultra-economy segment. One would have thought that the corner five-and-dime
store had succumbed to K-Mart or Wal-Mart. Nevertheless, retail chains such as Dollar General,
Family Dollar, and Dollar Tree are living proof that this is not so. They are experiencing growth
1
I think it is not necessary to have this discussion beyond the three topics taken on in this section.
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simply by "living off the crumbs of Wal-Mart" (Faircloth, 1998). Another example is Sav-a-Lot
store. The new addition to these stores in America is the German implant Aldi. Like Aldi,
Dollar General stores are located in suburban areas, shopping centers, and rural locations
(Silverstein with Butman, 2006: 76). These chains offer easy access, small stores, a very narrow
selection of basic goods, mostly house or private brands, little service--and of course--a very low
price (Faircloth, 1998; Dreyfuss, 2004).
These limited-assortment stores also attract more affluent customers. That’s why Aldi
does not target shoppers by income. They just seek customers who want to save money
(Dreyfuss, 2004).
Many large supermarkets have abandoned inner city poor neighborhoods, because of low
profits. This is due to higher insurance costs because of high crime, and low volume. So, partly
because of transportation problems, many low-income residents in such neighborhoods are often
forced to buy groceries from the corner grocery store at a price that is much higher than shoppers
normally pay in suburban areas (Newman & Chen, 2007: 213).
The economy segment. Today the discount store industry in the U.S. is dominated by
Wal-Mart, Target, and K-Mart. Warehouse clubs that charge fees for membership--such as,
Costco and Sam’s Club--are also major players in this segment. With the middle class under
continuous economic pressure--and rise of the “near poor”--many customers have become
more value conscious, and are on the lookout for bargains. The low prices, however, are not
only attracting lower and middle class families, but more affluent customers as well, who often
buy groceries and other staples at Wal-Mart. In a parking lot at Wal-Mart one can find shiny
new luxury cars, alongside rusty old subcompacts.
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Affluent customers now regularly boast of shopping at warehouse clubs, like Costco, to
show that they understand value. But Costco offers more. For example, it now stocks a larger
selection and sells more premium wine than any other retailer (Silverstein & Fiske, 2005: 10).
Target has positioned itself as a “discount department store,” which offers more upscale
and trendy merchandise than Wal-Mart. Its customers are more educated, younger, and more
affluent than those who go to Wal-Mart. So, a high-income customer, who may shop at
Nordstrom for higher-priced soft goods, may not hesitate to go to Target for low-price goods
for a wide-variety of ordinary needs (King, 1998; Target’s website:
http://sites.target.com/images/corporate/abou/pdfs).
The Poor--“Survival” (“Bottom of the Pyramid”)
In America members of this class usually are those who occupy minimum-wage jobs
without benefits, or rely on government welfare programs, and non-profit charity organizations.
This group falls in the bottom quintile in TABLE 2, with an income ceiling of $19,178. In 2005,
a staggering 58% of the households in this group were headed by females1.
In 2005, 37 million Americans—about one in eight—lived below the poverty-level
income, defined as $19,874 for a family of four. In 2005, the bottom 20% of U.S. households
received 3% of total income, while the top 20% received over half of all income. Over 46
million Americans—about 16% of the population—did not have health insurance coverage in
2005 (Crain & Kalleberg, 2007: 3).
There are two schools of thought about what causes poverty. One view focuses on
socioeconomic attributes--such as education and skills--and behavioral attributes, such as poor
motivation to work, and other negative attitudes. Proponents of this view describe these traits as
1
2005 U.S. Census Bureau, Table HINC-05 (http://pubdb3.census.gov/macro/032006/hhinc/new05_000.htm).
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“culture of poverty.” A contrasting view regards poverty as a structural characteristic of a
capitalistic society. So, poverty, according to this view, is attributable to social factors that are
beyond the control of an individual (Crain & Kalleberg, 2007: 4-5).
David Shipler (2004: 285) rightly argues that poverty cannot be explained by simplistic
theories because it is caused by a complex web of factors. He frames this issue so eloquently:
[P]overty is a constellation of difficulties that magnify one another: not just
low wages but also low education, not just dead-end jobs but also limited
abilities, not just insufficient savings but also unwise spending, not just poor
housing but also poor parenting, not just the lack of health insurance but
also the lack of healthy households….The t roubl es run strongl y
al ong bot h m acro and mi cro l evel s, as systematic problems in the
structure of political and economic power, and as individual problems in
personal and family life (also see Crain & Kalleberg, 2007: 5).
In view of the above discussion, it is, therefore, quite appropriate to describe the life style
of the poor as “Survival”: because their life seems to be perpetually in a survival mode.
In a pioneering study, Hart and Prahalad (2002) have drawn an economic pyramid of the
world. This pyramid has five tiers, the lowest representing 4 billion poor around the world. So, I
think it is quite apt to call America’s poor, too, as “The Bottom of the Pyramid.”
The “Near Poor”--“Just Making It”
Clerical, pink, and blue collar workers, with low job security, are typically those who
belong to this group. This group falls in the 20-40th percentile in TABLE 2, with an income
range of $19,178 and $36,000.
According to Newman and Chen (2007, chap 1), we all know a lot about the poor—37
million of them-- because the media consistently keep them in the news. Yet, there is a much
larger group --57 million Americans--that doesn’t get much attention: the “near poor.” They
make more money to be considered the “working class,” yet too insecure to be “middle class.”
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Newman and Chen (2007) define members of this group to be those, who earn an annual
household income between $20,000 and $40,000.” They are the “Missing Class.”
Newman and Chen (2007: 3-4) paint below a moving picture of this class:
[They] live in this “nether region above the poverty line but well below a secure
station….The hard-won wages of Missing Class families put them beyond the reach
of most policies that speak to the conditions of life among the poor. Yet they are
decidedly not middle class Americans. In decades past we might have called them
working class, but even that label fails to satisfy, now that many Missing Class
workers toil in traditionally white collar domains like health clinics and schools,
even as their incomes, households, and neighborhoods lack the solidity of an earlier
generation’s blue-collar, union-sheltered way of life. Missing Class families earn
less money, have few savings to cushion themselves, and send their kids to schools
that are underfunded and crowded The near poor live in inner-ring suburbs and city
centers where many of the social problems that plague the truly poor constrain their
lives as well (italics added).
The dedication of the “near poor” to their work, ironically, has had a harmful effect on
their family life, as their children spend long hours in substandard day care centers, and have to
raise themselves during their teen years (Newman & Chen, 2007:5).
In a foreword to Newman and Chen’s (2007) The Missing Class, Senator Edwards has
provided an excellent picture of the plight of the “near poor.” He says the “near poor” are less
likely to own a home, a savings account, or other assets, and are “just one pink slip, divorce, or
health crisis away from the edge.” They work at jobs many don’t want—“jobs with stagnant
wages, no retirement funds, and inadequate health insurance, if they have it at all.” They are
“susceptible to predatory lenders, credit-card debt, and oppressive mortgages with unfair interest
rates” (pp. ix-x).
Given such a hard life of constant struggle, there is no better way to characterize the life
style of the “near poor” than “Just Making It.”
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The Traditional “Middle” Class: From “Keeping up with the Joneses” to “Good
Quality Public Schools in Suburbia”
Members of this class generally include professionals, bureaucrats, school teachers,
merchants, some farmers, and skilled workers. This group occupies the 40-80th percentile, with
an income between $36,000- $91,705 (TABLE 2).
During the mass production era of the 1950s, the middle class wanted to keep up with
the Joneses: people who were like them, and who lived next door (Schor, 1998, chap. 1).
However, as more and more married women entered the labor force, they were exposed to the
spending patterns of a much wider spectrum, including superiors, who made a lot more money.
As mentioned earlier, Frank and Cook (1995, chap 5) suggest that we now live in, what
they call, a winner-take-all society. Thus, incomes within occupations have become more
unequally distributed than before. Schor (1998), therefore, suggests that as high-income
earners have emerged in one occupation after another, they have provided “a visible, and very
elevated, point of comparison" for those who are not so fortunate (p. 10). So, instead of trying
to emulate others in their own social class, people now want to “measure up within some
idealized group.” Marketers call such groups clusters—e.g., “yuppies”--groups of people who
share values, orientations, and lifestyles (pp. 10-11). And this shift in the standard of
"belonging" has been driving even the middle class toward, what she calls, competitive
conspicuous consumption.
However, Warren (2007) offers a different point of view. She says that Schor (1998)
blames this overconsumption on the “new consumerism,” with its obsession with designer
clothes, Michael-Jordan athletic shoes, and so on. Robert Frank (1999: 4-5), too, argues
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that--with static or declining income--this “luxury fever” is forcing middle-class families to
finance their consumption increases largely by reduced savings and increased debt.
To test this hypothesis, Warren (2007), looked at the spending patterns of American
families in federal archival data going back to the 1970s. Based on this analysis, she has
concluded that middle-class Americans are not “blowing their paychecks” on “designer
clothes and restaurant meals,” and that they are not spending on such “frivolous” things
more than their parents did a generation ago (p. 42).1
Warren concludes that, even with both parents working, today’s middle-class couples
have less cash left after they have met their basic expenses, than their one-income parents had a
generation ago. And the biggest single reason for that is: very high home mortgage costs. Juliet
Schor (2000:11) explains why:
Within the middle class, and even the upper middle class, many families experience an
almost threatening pressure to keep up, both for themselves and their children. They are
deeply concerned about rigors of the global economy, and the need to have their children
attend “good” schools. This means living in a community with relatively high housing
costs (italics added; also see Warren & Tyagi, 2003: 25).
Warren & Tyagi (2003: 33) underscore the historical importance of public schools:
The concept of public schools is deeply American. It is perhaps the most tangible
symbol of opportunity for social and economic mobility for all children, embodying
the notion that merit rather than money determines a child’s future (italics added).
Warren and Tyagi (2003: 28) suggest that there is a limited supply of homes in suburban
areas which are safe, and have reputable public schools. So, this has triggered a bidding war
Today’s middle-class family of four is spending less on the following four types of expenses--35% less on
clothing, 18% less on food, 52% less on appliances, and 24% less on owning and operating a car (per car)-compared to their counterparts a generation ago (Warren, 2007).
1
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which was exacerbated, when “a growing number of families brought new artillery to the war: a
second income” (also Krugman: 2007: 246-47).
Warren (2007: 45) says the cost of being middle class has been rising faster than
incomes. As we have seen before, only 30% of families can now enjoy the middle-class dream.
In many families both parents are now working full time “just to make mortgage payment and
health insurance.” Now they need two paychecks just to survive, and if someone is laid off, or
becomes too sick to work, “the whole house of cards will come tumbling down” (italics added).
Based on the foregoing discussion, we can therefore conclude that “Good Quality Public
Schools in Suburbia” is a much better descriptor of the values and life-style of today’s middle
class, than the erstwhile “Keeping up with Joneses.”
The Upper Middle Class—“Cultured Affluence”
Highly-educated professionals1, corporate executives, and business owners are usually
the kind of people who belong to this group (Thompson & Hickey, 2005: 216). In 2005, the
household income of this group was in the 80-95th percentile range, with an income between
$91,705 and $166,0002 (TABLE 2).
Gilbert (2008: 233) says the key to the success of the upper middle class is the “growing
importance of “educational certification.” Lind (1995: 202), however, offers a different view of
professional certification. He suggests that the professional class—e.g., lawyers, doctors,
accountants, tenured professors--is the beneficiary of a “hidden protectionism based on
1
For example: physicians, dentists, lawyers, architects, engineers, scientists, accountants, university professors, etc.
2
As indicated in footnote 3 of Table 2, a more appropriate figure at the upper end for this group is $184,500.
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credentials and licensing.” He adds that “American professional accreditation is a non-tariff
barrier par excellence” (italics in original).
Barbara Ehrenreich (1989: 6) calls this class the “professional middle class.” She says
then that “this class plays an overweening role in defining ‘America’: its moods, political
direction, and moral tone;” that it often brings social movements to the forefront, such as, the
Peace Movement, Environmentalism, and Anti-Smoking laws. Gilbert (2008: 233), too, suggests
that its lifestyle and opinions exert considerable influence on the entire society.
Most members of this class generally put heavy stress on advanced post-graduate
education. They also give a lot of importance to the fine arts—music, painting, and sculpture.
They regularly travel to foreign countries, because they consider this as an extension of their
education, and because it can give them a better understanding of different cultures in today’s
global economy. Since they engage in foreign travel frequently, they tend to acquire a more
cosmopolitan taste. So, they are more likely to enjoy gourmet food. Because of their concern
for the environment they are also more likely to buy organic food.
Today, going to private school is becoming an important part of standard of living of the
upper-middle class—and even middle class (Schor, 1998: 86). The reason is that parents worry
that without a private-school education their children will fall behind, and will not be able to
maintain their “class” status. And as members of the upper-middle class—and even middle
class—withdraw from public schools, the result is that it leaves public schools with a tainted
lower-class image, thus further widening class divisions (ibid).
Based on the above, I have labeled the life style of this group as “Cultured Affluence.”
The Rich: Conspicuous Consumption”
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This group encompasses the top 0.1-.01% (TABLE 2). It includes top-level corporate
executives, business owners, famous movie stars, top athletes, top professionals, and inheritors.
The threshold income for this group of 145,880 tax payers is $1,722,926 (TABLE 1).
The rich have always indulged in conspicuous consumption in buying such things as
luxury cars, expensive jewelry, expensive clothes, and so on. But over the past several years, the
most noteworthy symbol of their conspicuous consumption is the sharp growth in “trophy”
homes and McMansions.
The sharp increase in the number of millionaires has spawned an upsurge in the
construction of trophy homes--mansions with over 10,000 square feet of living space (Frank,
1999, chap. 2). A mansion--more than luxury cars or anything else--shows everyone in the
community that you are wealthy. Thus, the million--or multi-million—dollar mansion is
becoming a "high-profile badge of the gilded late 1990s"(Uchitelle, 1999).
The emergence of McMansions provides another striking example of conspicuous
consumption. As the pejorative nickname suggests, the McMansions are “just too big--for their
lots, for their neighborhoods, and for the number of people who actually live in them”
(McGuigan, 2007). While families are getting smaller, houses are getting bigger. In 1970, the
average single family new house measured 1100 square feet; today it equals 2300 (ibid).
McMansions are not only springing up in new developments, they are also showing up in
older neighborhoods. This practice involves replacing existing homes in ordinary neighborhoods
with McMansions that are called: "in-fill" in Memphis, "teardown" in the Northeast, and
"scraper" in San Francisco. As a result, a community of small homes gradually becomes a
neighborhood of “million-dollar mansions cheek by jowl.” So, as a reaction to this practice,
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some suburbs have either placed restrictions on the "teardown" phenomenon, or are
considering doing so (Uchitelle, 1999).
Sarah Susanka, an architect, points out that “a good architect understands the
importance of human scale. Under the dome of St. Peter’s, you’re meant to feel awe. But if
your bedroom’s is the size of a barn, how cozy can you get?” (McGuigan, 2007).
So, based on the foregoing discussion, it seems quite reasonable to award the “trophy”
of “Conspicuous Consumption” to this group.
The Mega-Rich: “Masters of the Universe” and “Keeping up with the Gateses”
A look at TABLE 1 clearly shows why the tiny top .01% segment (one ten-thousandth) 1-numbering 14,588 tax payers in 2005--stands head and shoulders over even the top 0.1%: The
Rich. This group includes owners of a business empire, and heirs to a big fortune.
A look at the astronomical levels of income revealed for the “Mega Rich” by TABLE 1,
convinced me that the lofty status of “Masters of the Universe”2--made famous by Tom Wolff--is
the right identity for this group: because it evokes the powerful image of “king of the jungle.”
The sheer proliferation of luxury goods over the past many years has made them
available to millions. Thus, truly exclusive luxury does not exist anymore. The “Mega Rich”
have come to realize that the “best things in life aren’t necessarily flashy objects but “discreet,
meaningful experiences” (Foroohar, 2007, italics added).
So, now these luxury customers are looking for “discretion, special access, surprise,
humor and even secrecy.” They would welcome the challenge of having an appointment with
1
Their threshold income is almost six times that of the top 0.1%, 27 times that of the top 1%, and 68 times that of
the top 5%! And if we consider average income, the results are even more dramatic.
2
I got the idea of using this identity from Krugman (1994: 138).
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the “Parisian jeweler JAR,” or be invited to a resort where they will be “entertained by rock stars
and educated by Nobel laureates.” Most importantly, they seek “meaning, emotion and
connection” (Foroohar, 2007; italics added).
“Keeping up with the Gateses.” Thus, the “Mega Rich” are now showing a great
interest in philanthropy. The most famous example is the Bill & Melinda Gates Foundation—
world’s largest charitable foundation—that was founded by Bill and Melinda Gates in 2000, and
was doubled in size by Warren Buffet in 2006. (http://www.gatesfoundation.org/default.htm).
Here are two instances of how the “Mega Rich” are helping the poor:
“Richistanis are not only consuming like crazy, they’re also shaking up the
establishment’s bureaucracy, slow-moving charity network, making lean, results-oriented
philanthropy an important new driving force”(italics added; Frank, 2007, inside front
jacket).
“[Here] visitors to ultraposh resorts in far-flung places might help build a school or
launch a mini-foundation for water-sanitation projects in between beachcombing. It is
not about keeping up with the Joneses, but about keeping up with the Gateses” (italics
added; Foroohar, 2007).
“Luxury goes undercover.” The “Mega Rich” are very protective of their privacy. So,
they prefer to patronize low-profile designers, and cutting-edge boutiques which sell their
designer clothes in small hidden stores. Having salespeople fly outfits to their second homes has
now become quite a standard procedure. Increasingly they—about 98 % of them--are shopping
on the web, and shopping at home: by having luxury retailers make house calls. And they attend
fashion “trunk” shows at fancy places for a small number of elite viewers (Foroohar, 2007).
Whereas the “Mega Rich” are willing to pay just about any price for great service, they
also crave “immediacy and convenience” (Foroohar, 2007). ). The “Mega Rich” are busy
people; so having a private jet or helicopter of your own makes a lot of business sense because it
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can save a lot of time. Also, owning homes around the world allows them to sleep in their own
beds more often (Hesseldahl & Dubow, 2000).
This exclusive group wants to be rich only in private. As a result, “members-only
services for dining, travel, entertainment, and retail” are flourishing. A concierge service is
launching a chain of members-only hotels in 2008, where a swipe card flashed at the door by a
guest will alert staff who will greet each guest personally (Foroohar, 2007).
The “Mega Rich” have discovered yet another way to distinguish themselves from the
mere rich: traveling in private jumbo jets like Boeing 737, or Boeing 787. These are long-haul
planes that are converted to private jets that can carry not only “pampered passengers and their
entourages, but also, in some cases, their Rolls Royces and racehorses” (Sharkey, 2006).
To celebrate a special birthday, a honeymoon anniversary, or a successful deal, the
“Mega Rich” can stay in vast fancy suites that are now increasingly becoming common at the
“pinnacle” of five-star hotels. But some go beyond that, and look for a place that provides a
sense of history: for example, the $14,312-a-night Villa La Cupola, Rome; or the $10,950-a night
Hotel Crillon, Paris (Kolesnikov-Jessop, 2007).
According to Forbes, the latest “toys” for the Forbes 400 are private jets, helicopters,
owning a sports team, collecting rare works of art, owning one or more getaway, whose location
is secretly guarded, big yachts, etc. The single biggest expense of a billionaire is for personnel:
getting “all the people that you need to fly your planes, build your homes, manage your ranch,
hang your paintings,” and private chefs to cook your meals (Hesseldahl & Dubow, 2000).
“My boat is bigger than your boat.” Earlier in this section, we have learnt that the
“Mega Rich” are very discreet, and are keen to protect their privacy. But, when a “Richistani”
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has a prized possession—say his or her yacht--that is on public display for all the other
“Richistanis” to see, then that is an entirely a different matter. That is why only “in Richistan
would a hundred-foot-boat be considered a dinghy. Personal pleasure craft have started to
rival navy destroyers in size and speed” (italics added; Frank, 2007, inside front jacket).
Return of the butler and live-in servants. The second largest group of people in the
workforce in America around 1900 was domestic live-in servants. Eighty years later they
became extinct in the developed countries (Drucker, 1995: 216). Now the sharp growth in the
population of the rich--with their vast homes, multitude of toys, and complex lifestyles—has
created a big demand for household help.
Currently, there is a boom in the number of “newly trained butlers—‘household
managers’—who will serve just the right cabernet when a Richistani’s new buddies from Palm
Beach stop by” (Frank, 2007, inside front jacket). Now a company offers a rigorous eight-week
course for aspiring butlers that is better known as “Butler Boot Camp” (ibid, chap. 1).
Since most members of the “Mega Rich” group came from the middle class, they, too—
like the new butlers--have to be taught how to behave like rich people! (Frank, 2007, chap. 1).
It is clear from the above discussion, that the “Mega Rich” are on a relentless march
toward the goal of creating a private—and exclusive--world of their own, far away from the
ordinary folks: private islands or getaways, private jumbo jets, private hotels, membership in
private clubs (for dining, travel, entertainment, retail, etc.), and so on.
DISCUSSION
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The issue of class is a touchy subject in America (Fussel, 1992:15). DeMott (1990: 9-10)
complains that the nation is shackled by a myth of classlessness. For example, according to
former President George Walker Bush, class is “for European democracies or something else—it
isn’t for the United States of America. We are not going to be divided by class.”
It is clear from the socio-economic class profile in TABLE 3 that class divisions in
America are very sharp, and that they are as real as they can get.
In this section there are six topics that merit attention. These are: 1) From a Mass to a
Class Market, (2) Mass Market was a Unifying Force in America, (3) Sharpening of Class
Divisions Causing Social Tensions, (4) The Wealthy Isolating Themselves from Society, (5)
Upward Economic Mobility Stalled in America, and (6) A Matter of Equity.
From a Mass to a Class Market
One result of the sharpening of economic inequality in America over the last three
decades has been the splintering of the erstwhile mass market into a class market. As I have
earlier indicated in this paper, the American market now consists of six major price-quality
segments: “out-of-sight” or “price is no object,” “ultra-premium,” “premium,” “mid price,”
“economy,” and “ultra-economy”(TABLE 3; also Datta, 1996).
Now due to new technology, product proliferation, and fragmented media, businesses are
targeting their advertising message to micro segments: an approach that is akin to using “a highpowered rifle instead of a shotgun” (Bianco, 2004). This evolution from mass to micromarketing
is a vital change in a country that has now “atomized into countless market segments defined not
only by demography, but by increasingly nuanced and insistent product preferences” (ibid).
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While increased economic inequality has played an important role in the breakup of the
mass market, this process had started a long time ago (Datta, 1996). By the end of the 1970s,
the American consumer had become tired of the standardized goods produced by America's
vaunted mass production machine (Piore & Sable, 1984: 184-85). The failure, during the
seventies, of the mass-circulated general-purpose magazines--Life, Look, and Saturday Evening
Post--symbolized the demise of the mass production era (Naisbitt, 1982: 99-100).
Mass Market was a Unifying Force in America
Even into the 1970s, the mass market was a unifying force in America. Based on a Gallup
survey conducted in 1954, historian Manchester (1974) has reported that "by gourmet
standards" the eating habits of Americans were "dull." The overwhelming choice of most
Americans for dinner--if cost were no object--was fruit cup, vegetable soup, steak, french fries,
and apple pie a' la mode (pp. 895-97). Phillips (1993: 17), too, makes a similar point, and says
that by 1950 class differences were declining in clothing, autos, food, and even personal
hygiene. Such a broad consensus exists no more.
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Sharpening of Class Divisions Causing Social Tensions
More and more American enterprises are embracing the "Tiffany/Wal-Mart"--"UpstairsDownstairs"—strategy, because it is the top and the bottom segments of the market that are
growing. But the "Tiffany/Wal-Mart" environment is causing social tensions by identifying
particular brands with a certain class that "helps put people in their uniforms” (Two-tier
marketing, 1997).
Regardless of their social class, Winnie-the-Pooh connoted a single image for the
readers of A.A. Milne's classic books in the past. Today, however, the image of Pooh depends on
where a child lives, and how much money his or her parents can afford. Now Walt Disney Co.
is marketing two distinctly different Poohs: one the original line-drawn figure on fine china sold at
Nordstrom, and the other a fat cartoon-like Pooh sold at Wal-Mart (Two-tier marketing, 1997).
In the past, theme parks presented themselves as egalitarian havens, where the CEOs and
the celebrities waited in line for their ice cream cones just like everyone else (Kaplan, 1998).
This is not true anymore. This democratic custom has now been taken over by a new ethos of
commercial elitism. One example is Universal Studios, California. As its website shows, one
can buy a VIP pass for $199: “a once-in-a-lifetime opportunity to feel like a celebrity for the
day” (http://www.universalstudioshollywood.com/tic_vip.html).
The Wealthy Isolating Themselves from Society
One offshoot of increasing economic inequality has been the trend toward private—
many gated--communities, called common-interest housing developments (CIDs). In many
towns and cities, the wealthy have withdrawn their financial support of public places and
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institutions shared by all, and instead have chosen to spend that money for their own private
services. Reich (1991) calls this development as "the secession of the successful."
Murray, a conservative political analyst, regards the growth of CIDs as a sign of America
becoming a "caste society." He goes on to say (McKenzie, 1994: 187):
I am trying to envision what happens when 10 or 20 per cent of the population has
enough income to bypass the social institutions it doesn't like in ways only the top
fraction of 1 per cent used to be able to do...The Left has been complaining for years that
the rich have too much power. They ain't seen nothing yet.
In 2003, The Wall-Street-Journal assigned Robert Frank as its first reporter to report
full-time on the “life and times of the New Rich” (Frank, 2007: 2). His comments below are
quite startling (pp. 3-4):
Today’s rich had formed their own virtual country…[T]hey had built a self-contained
world unto themselves, complete with their own health-care system (concierge doctors),
travel network (Net Jets, destination clubs), separate economy…and language (“Who is
your household manager?”). They didn’t just hire gardening crews; they hired “personal
arborists.” The rich weren’t just getting richer; they were becoming financial foreigners,
creating their own country within a country, their own society within a society, and their
economy within an economy.
They were creating Richistan (also see Krugman, 2007: 246).
Upward Economic Mobility Stalled in America
The authors of “Class Matters” study of The New York Times, mentioned earlier, also
conducted a study of income mobility. They found “that there is far less mobility up and down
the economic ladder than economists once thought or than most Americans believe” (editorial:
Class and the American dream, 2005, May 30; italics added). Even the conservative The Wall
Street Journal has acknowledged that, as the “gap between rich and poor has widened since
1970, the odds that a child born in poverty will climb to wealth—or a rich child will fall into the
middle class—remain stuck” (italics added; `, 2005).
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Bernstein (2007) says that he found mixed results in his study of economic mobility.
While some of the findings show that American society has become less mobile over time, others
suggest status quo. Nevertheless, none shows a rise in mobility.
Bernstein (2007) points out that he was surprised to find that America has less economic
mobility than other advanced countries, including those of Scandinavia.
A Matter of Equity
I will discuss the following three issues here. They are: (1) Decoupling of wages from
productivity, (2) Wages lag corporate profits, and (3) A secretary is paying a higher tax rate
than her billionaire boss.
Wages decoupled from productivity. The old link between wages and productivity in
America has long been broken. The nonfarm business productivity index (output per hour of all
persons) climbed 80% between 1973 and 2006.1 In contrast, the real wages of production or
non-supervisory workers in the private sector fared far worse: they went down! As I have
reported earlier, they declined 16% during this period.2
Wages lag corporate profits. According to The New York Times, while corporate
profits have gone up sharply during the last few years—and the economy has become much
more productive—the take-home pay of the ordinary worker has failed to keep up with inflation
(Not sharing in the gains, 2006). At the end of the first quarter of 2006, the share of wages--at
1
It was 75.3 in 1973 (1992=100). In 2006, it stood at 135.4. "Economic Report of the President," 2007, Table B-49.
(http://www.gpoaccess.gov/eop/tables07.html).
2
"Economic Report of the President," 2007, Table B-47. (http://www.gpoaccess.gov/eop/tables07.html).
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45.3% of G.D.P.--was at its lowest level on record. On the other hand, corporate profits (before
tax)--at 10.3% of G.D.P.--were at the highest point since the 1960s.1
Secretary pays a higher average tax rate than her billionaire boss. According to
Warren Buffet, the world’s third richest person, his secretary is paying a higher percentage of her
pay as federal income and payroll taxes than he does on his income2. He offered the Forbes-400
billionaires a million dollars to their favorite charity if they could prove that they were paying a
higher average tax rate than their secretaries. So far he has had no takers.
Even if we just consider federal income tax, the top rate for capital gains and dividend
income is now only 15%. However, the marginal tax rates on ordinary income—the primary
source of income for the middle class--are much higher: ranging from 10% to 35%.
In every economic expansion, the real income of most American families grew when the
economy also grew. The last U.S. economic expansion ended in 2000, and the year 2007 seems
to be the last year of the current expansion. The median family income went down from $61,000
in 2000 to $60,500 in 2007! This has never happened ever since the U.S. government has been
keeping records (Leonhardt, 2008).
CONCLUSION
Clearly, the central contribution of this paper is a socio-economic class profile of
America. I have done my best to offer a portrait of each class that is as realistic as possible.
1
(http://www.nytimes.com/imagepages/2006/08/28/business/28wages_chart.html).
2
While his average tax rate was 17.7%, the average for 15 of his employees was
32.9%.(http://www.youtube.com/watch?v=Cu5B-2LoC4s).
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In 1997, Irving Kristol, a neoconservative intellectual, wrote an article in The Wall Street
Journal, titled: “Income Inequality Without Class Conflict” (Krugman, 2007: 245). He argued
that we shouldn’t worry about income inequality, because we had social equality. As an
example, he said that “in all of our major cities, there is not a single restaurant where a CEO can
lunch or dine with the absolute assurance that he will not run into his secretary” (ibid, p. 245).
Krugman (2007) says that Kristol was actually acknowledging that “income inequality
would b a problem if it led to social inequality.”…. “It does. Kristol’s fantasy of a world in
which the rich live just like you and me, and nobody feels socially inferior, bears no resemblance
to the real world we live in” (italics added; p. 246). He then goes on to say (2007: 246-47):
The fact is that vast income inequality brings vast social inequality in its train. And this
social inequality isn’t just a matter of envy and insults. It has real, negative consequences
for the way people live in this country. It may not matter much that the great majority of
Americans can’t afford to stay in the eleven-thousand-dollar-a-night hotel suites popping
up in luxury hotels around the world. It matters a great deal that millions of middle-class
families buy houses they can’t really afford, taking on more than they can safely handle,
because they’re desperate to send their children to a good school—and intensifying
inequality means that the desirable school districts are growing fewer in numbers, and
more expensive to live in.
As I have noted before, Wolff (2002) has reported a sharp concentration of wealth in
America: with the highest 1% of households owning 38%, and the top 5% controlling 59% of
the total household wealth in 1998. Commenting on this phenomenon, Greenspan, the former
Federal Reserve chairman, warned Congress in a testimony in 2004, that for a democracy this
was not a desirable development (Class matters, 2005: 188). In the same vein, some of the
wealthiest capitalists in America--such as, Warren Buffet, George Soros, and Ted Turner--have
issued the following warning (ibid):
[S]uch a concentration of wealth can turn a meritocracy into an aristocracy and
ultimately stifle economic growth by putting too much of the nation’s capital in the
hands of inheritors rather than strivers and innovators (italics added).
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Finally, Piketty and Saez (2007: 167), too, add a note of caution:
[T]he decline of progressive taxation observed since the early 1980s in the United
[States] could very well spur a revival of high wealth concentration and top capital
incomes during the next few decades (italics added).
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The frayed knot, (2007, May 24). Economist.com.
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TABLE 1
Threshold Incomes of Top 5% American Families in
2005
(Income includes Realized Capital Gains)
(Computations based on Federal Income Tax Returns)1
Percentile
Income
Threshold
No. of
Families
Income
Threshold Ratio:
Top .01 %
/Others
Top .01%
$9,585,705
14,588
Top 0.1%
$1,722,926
145,880
5.6 times
Top 1%
$350,501
1,458,800
27.3 times
Top 5%
$140,125
7,294,050
68.4 times
Source: Adapted from Prof. Emmanuel Saez’s Home Page.
(http://elsa.berkeley.edu/~saez).
Contrary to the income data from the U.S. Census Bureau, the data from federal
income tax returns excludes government transfer payments (e.g., Social
Security, Unemployment Benefits, Welfare Payments, etc.), but includes capital
gains. Also the income reporting units are not quite comparable. For 2005 the
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Census Bureau data in Table 2 shows 114 million households, whereas the data
from this table indicates 146 million tax payers.
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TABLE 2
An Economic Class Structure of America
(Based on household income)1
(114 million households2)
2005 Household Income
Percentile Range
Broad Economic
Class
Class Name
Percentile
Upper Class I
The Mega-Rich
Top .01%
Upper Class II
The Rich
Top 0.1-.01%
The Affluent
Top 1-0.1%
Class Income
Threshold
95—100th percentile
Refined Economic Class
Top 5-1%
$166,0003
80—95th percentile
Middle Class
The Upper Middle
Class
80-95th percentile
The Traditional
Middle Class
40-80th percentile
$91,705
60—80th percentile
(the fourth quintile)
$57,658
40—60th percentile
(the middle quintile)
$36,000
1
The income data up to the 95th percentile is from the 2005 U.S. Census Bureau, Table HINC-05
(http://pubdb3.census.gov/macro/032006/hhinc/new05_000.htm). The data for the top 5% comes from the federal income tax returns:
Source--Prof. Saez’s Home Page.(http://elsa.berkeley.edu/~saez).
2
The 114 million households in this table include 51% married-couple families. In contrast, the corresponding figure in Table HINC06 (containing family data for 77 million families) is 75%.
3
A more appropriate figure for this group would be $184,500 from the 2005 Census Bureau Table HINC-06 which is based on family
data. In that table the top-5% group included 94 % higher-income married-couple families vs. only 82% in this table: Table HINC-05.
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20—40th percentile
(the second quintile)
The bottom quintile
ISBN : 978-0-9742114-7-3
Lower Class
The “Near Poor”1
20-40th percentile
The Poor
=<20th percentile
$19,178
1
Borrowed from Newman & Chen (2007). The 114 million households in this table include 51% married-couple families. In contrast,
the corresponding figure in Table HINC-06 (containing family data) is 77 million families. The 114 million households in this table
include 51% married-couple families. In contrast, the corresponding figure in Table HINC-06 (containing family data) is 77 million
families.
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TABLE 3
A Socio-Economic Class Profile of America
Economic Class
Upper Class I
The Mega-Rich:
(Top .01%)
Upper Class II:
Life Style Profile
“Masters of
Universe”
Typical Members of
the Group
the Owners of a business
empire, and heirs to a big
fortune
“Keeping up with
the Gateses”
“Conspicuous
Consumption”
The Rich
(Top 1-.01%)
Where They Generally Shop
Price-Quality
Segment
“Out-of-Sight,”
(“Price is No
Object”)
Top-level corporate
executives, business
owners, famous movie
stars, top athletes, top
professionals, and
inheritors
Ultra-Premium
Type of Stores
Some Examples
Keen to protect their privacy; increasingly shopping on the web; having
luxury retailers make house calls; have fashion “trunk”shows at a fancy
place for a small number of elite viewers. Prefer to patronize small,
lesser-known shops who sell their designer clothes in small hidden
stores. Having salespeople fly outfits to their second homes has now
become a standard procedure.
Luxury department stores,
Neiman Marcus, Tiffany’s, Cartier,
and very expensive specialty
Vuitton, Hermes
stores
Upper-Middle
Class
(80-95th percentile)
“Cultured
Affluence”
Highly-educated
professionals, corporate
executives, and business
owners
Premium
Upscale department stores
The Traditional
Middle Class
From “Keeping up
with the Joneses”
to
“Good
Quality
Public Schools in
Suburbia”
“Just-Making-It”
Professionals,
bureaucrats, school
teachers, merchants,
some farmers, and skilled
workers
Mid-price
Mid-price department stores
Nordstrom, Bloomindales, Saks Fifth
Avenue, Coach
Trader Joe’s, Wild Oats, Liz Claiborne,
Victoria’s Secret
Macy’s, Sears, J.C. Penney, Kohl’s
Discount department stores
Target
Clerical, pink, and blue
collar workers with low
job security
Economy
Large discount stores
Wal-Mart, K Mart
Discount warehouse stores
Costco, Sam’s Club
(40-80th percentile)
The “Near Poor”
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(20-40th percentile)
The Poor
(=<20th percentile)
ISBN : 978-0-9742114-7-3
Having minimum-wage
“Survival”
(“Bottom of the jobs without benefits, or
who rely on govt. welfare
Pyramid”)
programs, and non-profit
charity organizations
Ultra- Economy
Small stores having low
prices, with a very limited
selection, minimal service,
and often no credit cards.
Neighborhood convenience
stores in inner cities
Aldi, Sav-a-Lot, Dollar General, Family
Dollar, Dollar Tree, 99-Cents Only
Stores
Higher prices due to greater store costs;
absence of big- name chain stores
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June 22-24, 2008
Oxford, UK
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