The American Middle Class Is No Longer the World’s Richest

Understandably, the Government has claimed credit for Canada now having a higher middle class income than the US (any government would do the same, even though this is a 30-year trend involving many governments).

I recall during the 1990s the then Mulroney government had a “prosperity initiative” that included studies by Michael Porter who was then a major figure on theories and factors involved in growth (and has broadened his focus since then: see We’re Not No. 1! We’re Not No. 1! – Porter’s Social Competitiveness Report). At the time, one of the talking points was that Canada was a Honda Civic nation, the US was a Honda Accord. Times have changed.

And the most interesting part is the explanation, which has public policy implications:

Three broad factors appear to be driving much of the weak income performance in the United States. First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.

Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.

A second factor is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.

And because the total bounty produced by the American economy has not been growing substantially faster here in recent decades than in Canada or Western Europe, most American workers are left receiving meager raises.

American Incomes Are Losing Their Edge, Except at the TopInflation-adjusted, after-tax income over time

Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.

The American Middle Class Is No Longer the World’s Richest – NYTimes.com.