In recent decades, the “middle class” in advanced economies has come under intense pressure. Across the United States, the United Kingdom, and the European Union, median-income families have seen their incomes stagnate while the costs of housing, education, and healthcare have soared. Their share of national wealth and income has shrunk even as corporate profits and the incomes of the very rich have climbed. Union membership and collective bargaining power have weakened, workplace protections eroded, and new “gig” and part-time jobs have proliferated. Many analysts now warn that the middle class – broadly speaking, working households with moderate incomes and expectations of upward mobility – is being squeezed so severely that its future is uncertain.
This article examines the forces behind the middle-class squeeze. It starts by clarifying how “middle class” is defined and measured (noting key differences across countries), and then contrasts the post-World-War-II “golden age” of broadly shared prosperity with the modern era. We then explore major contributing factors one by one: weak wage growth versus rising productivity; exploding living costs (housing, education, health, childcare); declining unions and bargaining power; globalization and automation (offshoring and job polarization); tax policies that favor capital and high incomes; the demise of secure pensions; the rise of precarious gig and contract work; inflation of asset prices (which benefits the wealthy) and the resulting barriers to building wealth for ordinary households; and the impact of governmental austerity and cutbacks in social spending. Throughout, we rely on data from government and academic sources (OECD, Eurostat, national statistical agencies, research institutions, etc.) to paint a factual picture of how working families are faring. We conclude by examining possible futures – whether the middle class can be revived, or whether the economy is on track for a permanent two-tier divide.
Defining and Measuring the Middle Class
There is no single universally-agreed definition of “middle class.” Economists and policymakers usually define it in relative terms – typically as households with income around the median – but even this can vary. A common yardstick is a band of incomes relative to the national median income. For example, the OECD often defines “middle-income” households as those earning 75% to 200% of the median income. Pew Research in the U.S. uses roughly two-thirds to double the median (67%–200%). A working definition is the range of earnings that is clearly above poverty but well below the top 20% – roughly the broad swath of working Americans, Brits, or Europeans with two-working-parent homes, college degrees or skilled jobs, and homeownership aspirations. Using these measures, analysts have documented that the middle-income share of the population is shrinking. OECD data show the share of “middle-income” people (75%–200% of median) fell from about 64% to 61% of the population across OECD countries between the mid-1980s and mid-2010s. In the U.S., Pew finds the fraction of adults in the “middle-income” range fell from about 61% in 1971 to 51% in 2023. Likewise, academic studies find that the U.S. now has one of the smallest middle-income shares among rich countries (smaller even than in the UK or Canada) and that it has been declining since the 1980s.
Different countries have different standards for what income counts as “middle.” For instance, in Britain it’s often defined by percentiles of the income distribution rather than a fixed ratio, and in many EU countries the middle class is sometimes discussed in terms of the working population with some threshold of consumption or social class (e.g. broad skill levels). But in all of these economies, data show similar patterns: the bulk of households are no longer rising in income as fast as the economy or as fast as the very richest 10% or 1%. In short, measures of the “typical” or median household in the U.S., U.K., and EU have either stalled or grown very slowly in recent decades, especially compared to past eras.
The Post-War Golden Age vs. the Modern Era
The modern squeeze on middle-class families stands in stark contrast to the decades after World War II. From roughly 1945 through the 1970s, many Western economies experienced rapid growth and rising living standards for most workers. Annual gains in productivity (output per worker) were shared broadly: wages and salaries rose in tandem with GDP growth, and manufacturing and heavy industry employed large numbers of relatively well-paid, unionized workers. Homeownership rates climbed, college enrollment expanded, and defined-benefit pension plans promised secure retirements. In the U.S. and U.K. especially, union membership was high (often 30–40% of workers) and collective bargaining secured rising compensation and benefits. Even workers without college degrees could expect career-long employment, climbing wages, and relatively affordable higher education and housing. Taxes on incomes and corporations were much higher, and social welfare programs (unemployment insurance, health care subsidies, etc.) were more generous than today.
Starting in the 1970s and accelerating in the 1980s–2000s, that “post-war compact” unraveled. Many advanced economies saw two decades of sluggish productivity growth followed by a slowdown, yet corporate profits and top incomes continued to rise. Simultaneously, middle-income households began to fall behind. National accounts show that since the 1970s, median family income has grown much slower than average income. For example, a U.S. Treasury analysis notes that the typical American family’s income only grew 0.6% per year since 1970, whereas average household income grew about 1.1% per year. In the UK, real wages have stagnated for over a decade – “the longest period of stagnation in the past two centuries” – and inequality is higher than in the 1960s. In much of Europe, growth slowed after 2000 and then plunged during the 2008–09 financial crisis, followed by years of austerity that cut back welfare programs. By contrast, corporate profits grew (and since around 2010 have been very high globally), and asset prices (stocks, real estate) took off, boosting wealthy savers.
The net result is that the era of broadly shared growth appears to have ended. Productivity gains no longer reliably raise typical pay, and many wage-earners see little improvement in living standards. The figure below (from the U.S. Treasury) illustrates this divergence vividly for the U.S.: over the past 50–60 years, corporate income and top earners have skyrocketed even while union membership plummeted. Moreover, as the next sections show, middle-class budgets have been strained by rising costs in housing, education, and other essentials, leaving far less of the economic pie for working families.
Productivity vs. Wages: Stagnation for Workers
Since the 1970s, productivity (output per hour worked) has continued to rise in most advanced economies, but typical wages have not kept pace. Economists have identified a growing decoupling of wages from productivity. In simple terms, firms are producing more with each worker, but the extra output increasingly accrues to capital and top managers rather than the median employee. An OECD study finds that “raising productivity is no longer sufficient to raise real wages for the typical worker”. As the OECD puts it, aggregate output per worker may grow, but real median compensation has lagged – largely because the labour share of income has fallen and wage inequality has widened.
In the U.S., the phenomenon is well-documented. A broad measure of real (inflation-adjusted) median family income barely budged from 1980 to 2010; more recent data show only modest gains since 2010. By contrast, measures of productivity and corporate revenue grew steadily. Since the late 1960s, average personal income per household (black line) grew much faster than median family income (red dashed line) or median wages (blue dotted line). In other words, the country’s aggregate income has grown, but the gains have gone disproportionately to higher-income households, pulling the median up very slowly.
This pattern is not unique to the U.S. In Britain, official data show real median wages were essentially flat for a decade after the 2008 crisis, meaning today’s workers earn about the same as they did in the early 2000s. Similarly in the EU, many countries saw median household incomes stagnate after 2000, while the 0.1% richest enjoyed robust growth. A 2019 OECD survey of 34 countries found that in many OECD nations, middle incomes have grown less than average incomes, and in some countries not at all. That same OECD report warns that in the 2010s the middle class saw “slower growth and larger disposable income declines” than the rest, even before factoring in rising living costs. In fact, one OECD analysis finds the share of people in middle-income households fell across member countries from 64% to 61% between the mid-1980s and mid-2010s.
Economists identify several causes for wage stagnation. Declining union power (discussed below) reduced workers’ ability to demand a share of productivity gains. Global competition and automation put downward pressure on middle-skill wages (more on this later). Tax and benefit changes often favored high earners. And labour’s bargaining share in national income fell: corporate profits and executive pay rose instead of more broadly shared wage growth. In short, for decades now productivity growth has mainly benefited capital owners and the top end of the income distribution, leaving ordinary workers behind.
The Rising Cost of Living: Housing, Education, Healthcare
While wages flatlined, many essential costs have not. Housing, higher education, and healthcare, in particular, have grown much more expensive than middle incomes. For middle-class families, this squeeze on living standards can be debilitating. Where once a college degree or homeownership was a path upward, now many ordinary households juggle mortgage/rent payments, student debt, and medical bills on stagnant pay.
Housing. In all three regions (U.S., U.K., EU), housing affordability has worsened dramatically. In the U.S., home prices (and rents) have far outstripped income growth. The U.S. Treasury reports that since 2000, “inflation-adjusted prices for single-family homes rose by roughly two-thirds, while median household income barely grew”. In fact, a Treasury analysis finds that 88% of U.S. counties saw rents rise faster than local incomes since 2000. The result: housing costs now consume a much larger share of middle-class pay. For example, a median-priced home nationally was about 3–4 times median income in the early 1990s; by 2022 it was over 5–6 times income in many markets, leaving would-be buyers stretched to afford mortgages.
In the U.K., the problem is acute. Official ONS data show the median house price in England is roughly 7.7 times the median full-time salary. (In Wales it’s about 5.9×, reflecting regional variation.) By comparison, 30 years ago the typical house cost only around 2–3 times earnings. Young families often must save for many years of income just to cover a mortgage deposit – a heavier burden than in most EU countries. Indeed, a recent study by the UK’s Resolution Foundation finds that housing costs are the main factor driving up poverty and lower-middle incomes in Britain, compared to OECD peers. In much of mainland Europe, housing is still somewhat more affordable (due to rent controls, social housing, or slower price growth), but even there, city housing pressures have pushed middle incomes thin. In many EU cities today, nearly 10% of households spend over 40% of their disposable income on housing, a level that classifies them as “at risk of poverty.”
Education. College tuition has soared in the U.S. and (to a lesser extent) the U.K., adding to middle-class burdens. In the U.S., student loan debt has ballooned to about $1.6 trillion in 2024 – roughly 42% higher than a decade ago. The typical bachelor’s-degree graduate with loans owes about $20–25k, and many owe far more if they pursued graduate studies. By comparison, in the 1980s the average debt was a tiny fraction of today’s amount. This means middle-class parents often pay or borrow heavily for their children’s education, pushing some families into debt or delaying home-buying. Pew Research highlights that young Americans with student debt are twice as likely to struggle financially as those without debt. In Britain, tuition fees for universities (capped at £9,250/year as of 2024) and living costs also saddle graduates with significant debt, even though the cost burden is partly subsidized. Mainland Europe generally offers cheaper or free higher education – but non-tuition costs and lost income while studying still represent a strain on middle-class budgets there.
Healthcare (and childcare). Medical costs have risen far faster than general inflation in many places. The U.S. is the starkest case: Americans now spend about 17.8% of GDP on health care – almost twice the OECD average – yet without guaranteed coverage. Middle-class families often pay several thousand dollars per year in premiums and copayments. Even with employer insurance, high deductibles and surprise bills are common, so many households must allocate a large fraction of income to medical care. Indeed, Americans consistently have worse health outcomes than Europeans despite higher spending, and a substantial share of U.S. middle-class households experience financial strain from health costs (one study found half of households with a bankrupt family member cited medical expenses as the cause).
In the U.K., healthcare is publicly funded through the NHS, so out-of-pocket costs are low in normal times. However, the NHS has faced funding squeezes and staff shortages. Waiting times have grown, and some treatments or drugs require supplemental private payment. Middle-income Britons indirectly bear rising health costs through taxes and through the limited NHS provisions; some families buy private insurance to avoid waits. Across the EU, most countries provide universal care, but budget cuts after 2008 and new co-payments in some nations have made access more difficult for working families in places like Italy, Spain, and Greece.
Childcare is another huge expense for working families. In the U.S., center-based daycare can cost over 10% of a middle-income family’s income (actually higher in big cities). This exceeds many families’ budgets and often limits household choices (one parent must stay home or accept low pay to justify the cost). The U.K. and parts of Europe offer more subsidized childcare, but even there childcare costs claim a large share of middle-class budgets – for example, in Britain a working parent can pay hundreds of pounds a month after subsidies. In short, raising a family now requires far more spending than it did a generation ago, even for the same middle-class lifestyle.
As one OECD analysis puts it: “Housing costs have risen faster than earnings and inflation”, squeezing those on fixed incomes. All these cost pressures – housing, education, health, childcare – mean that many middle-income households see very little real gain, or even a decline, in discretionary income after basic expenses. When both incomes and social benefits stagnate but bills climb, it feels like climbing a treadmill: working harder only covers necessities.
Decline of Unions and Collective Bargaining
A key factor in the middle-class squeeze has been the retreat of organized labor. Strong unions historically helped workers negotiate better wages and benefits; they also set standards that lifted pay even in non-union jobs. However, since the late 20th century union density (the share of workers who are union members) has fallen sharply in the U.S., UK, and much of Europe. In the U.S., union membership was about 33% of private-sector workers in the mid-1950s, but by 2022 it had declined to only about 10%. In the U.K., official data show union membership among employees dropped from ~32.4% in 1995 to just 22.0% in 2024. Similarly, many EU countries have seen declines: for example, UK and US union density are now among the lowest in the OECD. An OECD policy brief (2025) confirms the trend: “Trade union density and collective bargaining coverage have continued to decline across most OECD countries since the 1980s”.
This decline has several implications. Without union bargaining, typical workers have less ability to push for wage increases or to secure good benefits (like health insurance and pensions). Studies show that unionized workers earn roughly 10–15% more in wages than otherwise-similar non-union workers, and also enjoy better fringe benefits (health, retirement, paid leave). When union power wanes, that premium disappears, and wage growth slows. Indeed, Treasury economists point out that the heyday of high unions in the 1950s coincided with America’s most equal income distribution: “In the 1950s, overall income inequality was at a historic low and continuing to fall” as unions peaked. After 1980, as unions thinned out, income concentration rose (as seen in the red curve in the chart above).
Europe has a more mixed picture than the U.S.: some countries still maintain relatively high union rates (e.g. Scandinavia) and strong bargaining systems, while others (like the UK and parts of Southern Europe) saw steep drops. Even so, across the EU national averages show a decline in collective bargaining coverage. For example, UK workers covered by collective agreements (union or non-union) fell from around 50% in the late 1970s to under 30% by 2020. A Eurofound report notes similarly that many EU countries dismantled some of their bargaining frameworks in the 2010s, reducing bargaining coverage in industries from manufacturing to retail. The overall effect is that in the U.S., U.K., and much of Europe, workers today have much less institutional power at the workplace than their parents did. This institutional weakening has likely contributed to wage stagnation: when no strong countervailing power exists, employers can more easily hold down pay and erode benefits.
Globalization, Automation, and Labor-Market Polarization
Another major factor in middle-class decline has been structural change in the economy. Over the past few decades, manufacturing – once a staple of the middle-class job market – has shrunk sharply in advanced economies. In the U.S., for instance, the number of manufacturing jobs peaked at about 19.5 million in 1979 (roughly 25% of private-sector employment) and has since fallen to only about 10% of private jobs. The decline has been slightly slower in Europe, but many EU countries saw double-digit drops in factory employment since 1990. Some of this was offshoring: many production jobs moved to lower-cost countries after trade liberalization. For example, estimates suggest that millions of U.S. factory jobs were lost to import competition from China and other low-wage countries in the 2000s. However, trade alone does not fully explain the trend: productivity growth in manufacturing also reduced the need for labor. As factories became more automated and efficient, fewer workers were needed to produce the same output. In effect, manufacturing became a much less labor-intensive sector, even as it remained productive.
The broad result has been a polarization of the labor market. Middle-skill jobs – especially routine tasks in manufacturing or clerical work – declined in share, while both high-skill (professional, managerial) and low-skill (service, care) jobs grew. OECD analysts warn that “middle-skilled jobs are increasingly exposed” to technology and globalization. Automation has accelerated this: recent OECD work estimates that roughly 14% of current jobs in advanced economies could vanish due to automation in the next 15-20 years, and an additional 32% could change significantly (requiring major retraining). At the same time, many non-routine service jobs (like cleaning, security, transportation) have grown, often with lower pay and less stability. In short, the career trajectories that once lifted a factory worker or middle-manager into a comfortable middle-class life are now at risk or have disappeared altogether.
Developments in technology and corporate structure have also fostered two-tier employment. Many firms rely more on contract, temporary, or agency workers for cost flexibility. The gig economy (platform-mediated work like ridesharing or food delivery) is a visible symptom: while still a small fraction of total employment (estimated OECD surveys find platform workers are only 0.5–2% of the labor force), such jobs are emblematic of the “precarious” labor market. Investigations of gig workers consistently find low earnings, little job security, and minimal benefits. For example, studies of gig drivers find their typical earnings are “very low” on average, often only slightly above legal minimum wages. In effect, a core workforce of regular, well-paid employees is now surrounded by a large contingent of lower-paid, part-time, or freelance workers with fewer rights and predictability – a genuine two-tier labor market. This creates downward pressure on wages and undercuts the stability of the middle-class job.
Tax Policy and Wealth Favoring Capital
Government tax and fiscal policy have also played a role in the middle-class squeeze. Over the past several decades, many countries have shifted the tax burden away from capital (investments, dividends, corporate profits) onto labor (wages). In the U.S. and much of Europe, statutory tax rates on dividends and capital gains remain significantly lower than the top personal income tax rate on wages. Corporate tax rates have also fallen: OECD data show that statutory corporate tax rates in many countries are now well below what they were in the 1980s, and effective tax rates on multinational profits have been eroded by base erosion strategies. The result is that owners of capital (shareholders and profitable corporations) pay a smaller share of their income in tax than do workers. This tax favoritism effectively transfers income to those who earn through investments or business ownership, which tends to be the wealthier half of society.
Meanwhile, middle-class households – which earn most of their income through wages and salaries – often face higher tax burdens and diminishing social transfers. Some middle-class tax breaks have been scaled back or zeroed out in austerity budgets, and inherited wealth itself often escapes heavy taxation due to loopholes. In sum, modern tax policy has generally been less progressive than during the mid-20th-century heyday of broad prosperity (when top marginal tax rates in the U.S. were over 90%, for example). By the 2020s, even after recent retrenchments, top tax rates on wealthy individuals and corporations are substantially lower in real terms, meaning more national income flows to the top 1%, 0.1%, or even 0.01% before tax.
These patterns are documented by tax studies. The OECD highlights that “in many countries, capital income receives more favorable tax treatment than labour income”. Such tax inequities reduce the effective redistribution of income and can widen the gap between asset-owners and wage-earners. Thus, over decades the tax code has tended to reinforce the benefits of wealth (especially financial and real estate wealth) at the expense of earned income. For ordinary workers, this means after-tax income gains have been smaller than gross gains, while wealthier households enjoy larger net gains from their investments.
Erosion of Pension Security and Benefits
A cornerstone of the post-war middle-class lifestyle was the promise of a secure pension. Defined-benefit (DB) pension plans – often provided by employers or government (as in Social Security) – promised workers a stable retirement income based on years of service. But since the 1980s, these guaranteed pensions have sharply declined. In the U.S., for example, the share of near-retirees (ages ~56–64) covered by any traditional DB pension plan fell from about 70% in 1983 to 47% by 2001. Even more dramatically, the share having only a DB plan fell from 62% to 18%, while the share with only a defined-contribution (DC) plan like a 401(k) rose from 1% to 31%. (Defined-contribution plans shift all investment risk to the worker and often yield lower benefits.) For slightly younger workers (ages 47–55), DB coverage fell from 68% to 40% over the same period.
Europe shows similar shifts. Although many EU countries still have strong public or occupational pension systems, the trend is toward mixed or private schemes. For instance, the Netherlands – famous for large occupational pension funds – is phasing in a full switch from DB to DC by 2027. In the UK and elsewhere, many final-salary schemes have been closed to new members, replaced by contribution plans. As a result, workers now face more uncertainty about retirement: their pensions depend on market performance and how long they contribute. The middle class thus faces a double whammy: not only have wages grown slowly, but the future security of their retirements has eroded.
In practice, this means many middle-class families save less for retirement or enter it with heavy anxieties. Research shows that the median retirement wealth of pre-retirees has stagnated or even fallen; one study found the median 56–64 year-old’s total pension wealth actually declined by 13% between 1983 and 2001 (because the stock market boom mainly helped the rich). For ordinary workers approaching retirement today, their only guaranteed income may come from a state pension, which is often flat or modest. Employer-sponsored pensions now usually require workers to invest in 401(k)-style accounts, which often have minimal employer match and unpredictable returns. Even retirement-age savings vehicles like IRAs and company plans mainly benefit higher earners who could contribute more; middle earners see only small balances.
Thus, the “lifetime income” of an average worker has suffered not only from slow wage growth, but also from the collapse of the defined-benefit system that once supplemented Social Security. This erosion of pension security has been documented by government analysts and think tanks alike. An Economic Policy Institute study warns that “workers today near retirement [are] more vulnerable and with lower pensions” than prior generations. Collectively, these factors shrink the middle-class paycheck not just year by year, but across the whole lifecycle of earning, retirement, and inheritance.
Rise of Gig Work, Precarity, and Two-Tier Labor Markets
Over the last decade especially, nonstandard work arrangements have proliferated – freelance contracting, temp jobs, gig platforms, zero-hour contracts, and other forms of precarious employment. Collectively labeled the “gig economy” or “platform economy,” these jobs are often characterized by flexible hours but low security. While most of the economy is still traditional employment, gig work is growing. Surveys in OECD countries typically find only about 0.5%–2% of the workforce engaged in platform-based work, but this is only part of the story. Many more workers are now in contract or temporary positions even within traditional firms (e.g. contract IT workers, part-timers, on-call labor).
These precarious jobs generally pay less and offer fewer benefits than regular full-time jobs. Studies of gig workers (Uber drivers, delivery couriers, etc.) find that “the income gained through platform work is typically (very) low”. In practice, many gig workers earn only near the minimum wage after accounting for expenses, and they lack health insurance, paid leave, or unemployment support. During the COVID-19 pandemic and in its aftermath, entire industries (ride-hailing, cleaning services, etc.) shifted to contract staffing, leaving many workers with unpredictable hours. Surveys show that workers in nonstandard or gig roles are often one illness or accident away from financial ruin because they have no safety nets (no unemployment insurance, little savings, and sometimes no legal recourse against exploitation). In the U.K., new regulations (and high-profile court cases) have begun to reclassify some gig drivers as employees entitled to the minimum wage, but such reforms are exceptions rather than the norm.
More generally, the labor market is bifurcating. Employers often maintain a core of relatively stable, full-time staff (often with middle or higher wages and benefits), while the bulk of additional labor needs is filled by temporary or contingent workers. This “two-tier” system means that even within the same occupation or company, some workers get cushier jobs and others get unstable gig contracts. For example, many cleaning, security, or warehouse jobs that used to be done by employees are now outsourced to agencies or platforms, where workers compete on pay and have little bargaining power.
The rise in part-time and self-employed work is one indicator. In many countries, self-employment (often a proxy for gig/contract work) has risen. Data from the UK and EU show large increases in people with unstable zero-hours contracts or temporary agency work. Similar trends exist in the U.S. under labels like “contingent work.” Notably, the OECD warns that many of these non-standard jobs lack social protection and union coverage, exposing workers to risk. For example, in some OECD countries, nonstandard workers are “40–50% less likely” than regular employees to receive unemployment benefits.
This shift exacerbates inequality even among the employed. Since well-paid middle-class jobs often come with pensions, health benefits, and retirement plans – benefits that precarious workers lack – the overall security of the middle labor tier diminishes. Meanwhile, costs like childcare or healthcare must now be paid out-of-pocket by precarious workers, further straining their limited incomes. In essence, modern labor markets have become segmented: a smaller core of stable jobs that still support a middle-class lifestyle, and a growing perimeter of insecure “gig” jobs that struggle to sustain it. In countries like the U.S., the size of this precarious cohort is still under 20% of total employment, but it’s rising and tends to include many early-career and service workers who in the past might have enjoyed secure careers.
Asset Inflation and Barriers to Wealth Accumulation
Another defining trend of recent decades is that assets have become much more expensive relative to incomes, making it harder for ordinary workers to accumulate wealth. This includes housing, stock markets, even small-business valuations. When asset prices rise rapidly, those who already own assets (the wealthy) gain, but those trying to enter the market (first-time homebuyers, savers) face a wall.
In the U.S., the most important asset for middle-income households is often a home. As noted earlier, home prices have grown far faster than incomes. When a median home costs, say, 5 times a median household’s annual pay, a young couple needs several years of income saved just for a down payment. Many cannot afford this without high debt. Meanwhile, the stock market (e.g. the S&P 500 index) has more than tripled in real terms since 2009 – an inflation of assets that bypasses wage-earners without large stock portfolios. Even retirement accounts have seen wildly uneven returns: those who were young in 2009 and had stocks recovered slowly, whereas older investors saw huge gains by buying near market troughs.
The generational wealth gap is stark. U.S. Census data (2019) show baby boomers had nearly nine times the median wealth of millennials. The median wealth of millennials (age 23–38) was only about $27,400, compared to $241,000 for boomers (age 56–64). Home equity explains much of this: homeowners had a median of $305,000 in net wealth, versus just $4,000 for renters. In short, without inherited assets or property, the median young household has almost no buffer. In the UK and EU, similar patterns emerge: younger cohorts are far less likely to own homes than their parents were, and pensions (as noted above) accumulate much less wealth. Eurostat surveys show that wealth inequality (driven by real estate and financial assets) is higher now than income inequality in many member states, meaning it’s even tougher for working-class families to bridge the gap to the wealthy.
These asset inflation trends effectively erect barriers to middle-class status. In an earlier era, a stable job and savings from wages could buy a home and build equity over time. Today, that path requires much greater sacrifice. House prices in many capitals have soared beyond what a middle-income salary can service without multiple earners or dual inheritances. In addition, low interest rates have pushed new investors into real estate, further driving up costs. At the same time, any attempts to “get ahead” by investing are tricky: the stock market demands either large capital or high risk (and many households have neither).
One direct consequence is that wealth accumulation has become very unequal. The “wealth effect” – the idea that rising home or stock wealth helps people feel richer and spend more – now mainly benefits the upper middle and rich, not the typical worker. The middle class has seen its share of overall national wealth shrink; in many countries the top 10% or 1% own a much larger fraction of all assets than they did in mid-century. Economists like Thomas Piketty have documented that concentration of wealth at the top has re-emerged to levels not seen since the 1920s, largely because asset ownership remains skewed to the wealthy. For working families, therefore, climbing onto the wealth ladder is harder: high prices and stricter lending standards mean many never become homeowners or significant investors, entrenching a divide between those who own and those who rent or save in cash.
Policy Decisions, Austerity, and the Welfare State
The trends above have been shaped and amplified by public policy. Over the past few decades, many governments pursued a “neoliberal” agenda of market liberalization, deregulation, and cuts to social spending, arguing this would boost growth. In practice, such policies have often favored capital and higher incomes. For example, after the 2008 financial crisis the EU imposed austerity (budget cuts) on countries like Greece, Spain, and the UK, which resulted in reduced health and education budgets. Critics (including economists and NGOs like Oxfam) argue that these cuts disproportionately hurt lower- and middle-income people. Oxfam warned in 2013 that Europe’s austerity measures were likely to “make economic weakness longer-lived and needlessly contribute to the suffering of the jobless and the poor”. Projections suggested millions more could fall into poverty by 2025 if austerity continued. In the UK, roughly a decade of fiscal consolidation (2010–2020) cut benefits and local services, even as productivity and wages remained low. In the U.S., although austerity was never imposed in the same way, government spending as a share of GDP is now lower than in most other rich nations. Public education funding per student, for instance, has barely kept up with inflation, and middle-class families often pick up the slack. The U.S. has the least generous social safety net (excluding health) in the developed world, according to OECD measures of “social expenditure.”
Tax policy (discussed above) is another dimension of policy choice: many governments lowered taxes on wealth and corporations while trimming taxes on middle incomes more modestly or not at all. Meanwhile, enforcement against tax evasion by the wealthy has only recently begun to tighten with initiatives like the OECD’s Base Erosion and Profit Shifting (BEPS) project, and much hidden wealth remains offshore.
Immigration policy and trade policy also play indirect roles. For example, allowing greater immigration of lower-skilled workers can fill labor shortages, but it also may put mild downward pressure on wages in certain sectors (though research shows the overall effect on wages is small). Free-trade agreements opened up competition but also led to offshoring of jobs (discussed earlier). Collective bargaining policies were sometimes loosened: several countries reformed labour laws to make unionization harder or collective agreements less binding, under the banner of “labor market flexibility.”
All of these policy shifts – fiscal austerity, tax cuts for the rich, trade liberalization, deregulation of labor markets – have in effect redistributed some economic gains away from workers and towards capital. This is not necessarily a conspiracy or design, but it is a series of conscious policy choices that often prioritized competitiveness or deficit reduction over wage growth or welfare expansion. The result for the middle class has been a relative reduction in public support and an increase in private costs (higher housing, health bills, etc.).
Can the Middle Class Be Revived?
The previous sections painted a difficult picture for the middle class. But history also shows that economic and policy changes can reverse such trends. The question now is whether the middle class can be revived (and if so, how), or whether current trends will solidify into a new normal of a small upper tier and a precarious majority.
Various economists and institutions have offered prescriptions. Many emphasize strengthening the bargaining power of workers: for example, raising the minimum wage to keep up with productivity, supporting collective bargaining or union organizing, and ensuring gig and part-time workers receive basic protections. Others focus on redistribution: reversing tax cuts for the wealthy, imposing higher taxes on capital gains, estates, or corporations to fund education, healthcare, and infrastructure. Still others call for direct investment in the middle class: subsidized childcare and higher education (to ease cost burdens), affordable housing programs, and expansion of social safety nets (unemployment insurance, paid leave, healthcare coverage). Some proposals are “supply-side”: better training and education to help workers adapt to new technologies and secure the remaining middle-skill jobs.
International organizations are discussing these issues. The OECD, for example, advocates for policies that target the “squeezed middle” by combining tax relief for lower earners with public investment that benefits all (e.g. education, connectivity). It also notes that macroeconomic policies matter: excessively tight fiscal or monetary policy to fight inflation can further squeeze living standards, whereas coordinated fiscal stimulus in downturns can protect jobs and incomes. Governments can also rethink monetary policy’s effect on the middle class – for instance, low interest rates buoy asset values (helping the asset-owning rich) but may not translate into broader employment gains.
What might the middle class look like in future? One possibility is that technology-driven growth could again benefit a broad spectrum of society if policies direct gains toward workers. For example, if automation raises productivity, the additional value it creates could be taxed (corporate tax, robot tax, etc.) and redistributed via credits or services. If unions regain some strength or if new forms of worker representation emerge (cooperatives, platform worker collectives), they might restore some bargaining power. Alternatively, some analysts worry that without change, the middle class will continue to shrink in share, with most people in lower-wage jobs and only a tiny elite rising. In such a scenario, we might see more polarization, more populist political movements, and social tensions.
Importantly, these outcomes will depend heavily on politics. Middle-class interests are already politically salient – as seen in debates over trade deals, tax policy, and public investment. Future policies (tax reform, labor laws, social spending priorities) will decide if ordinary working families are given a break or left further behind. Some recovery of middle-class fortunes could occur through left-leaning policies (e.g. stronger social democracy in Europe, or a return to more progressive taxation in the U.S.) or through market-driven means (if new industries like clean energy create large-scale middle-paying jobs and companies share profits more broadly).
In conclusion, the evidence shows that the middle class in the U.S., U.K., and EU has faced a sustained squeeze from multiple directions: stagnant wages, soaring expenses, eroding job security, and policies favoring the wealthy. While the global economy is not literally “designed” to fail ordinary workers, current structures and choices have produced outcomes that heavily favor capital and the top earners. Reversing these trends would require concerted changes in economic policy, labor regulation, and fiscal priorities. If such changes occur, we may see a renewal of middle-class prosperity; if not, the middle class may transform into something far thinner than what post-war generations knew.