Type: Analysis
Pages: 2 | Words: 600
Reading Time: 3 Minutes

A middle-class squeeze is a situation characterized by an increase in wages but failure by the middle income earners to keep up with inflation rate while not affecting the top income wage earners. The middle class people find it hard to keep with the inflation trends thus preventing them from maintaining the middle-class lifestyle. In this essay, we will examine the impact of economic trends on the middle-class families.

Factors contributing to middle-class squeeze. Since 2001, the middle-class families have seen their income decline but the real costs of key goods and services rise. The phenomenon has eroded the living standards for middle-class families in the US. The middle-class squeeze is caused by the following;

Declining incomes. The real median household income in the US has declined by 2.7 percent 2000 to 2005. That is approximately a decline of $1, 273. For working families headed by younger adults less than 65 years have even faced more declines of about 5.4 percent. For these families, the real median income has declined by almost $3,000 (Johnson D. 2008).

Increase in health insurance costs. The health care insurance costs have gradually but steadily risen in the recent past and this has put a significant strain in the middle class. For example in 2000, workers used to pay $153 per month as health insurance coverage for their families but by 2005 it has increased to $226 per month. This reflects a 48 percent increase of $876 annual increase within a short period of five years. These rising health care costs have added strain on the middle income-class. This is the reverse of what happened between 1996 and 2000. During this time, the health care insurance costs remained stable and relative to rates of inflation; that is $151 in 1996 and $153 in 2001. But the rise in health care costs has since skyrocketed harming the working-class and making it costly to cover for employers and employees (Johnson D. 2008).

Annual increase of energy products. An increase in energy prices can put strain in the middle-class families. Like in the case of health-care, energy prices have been increasing since 2000 to date. The prices of gasoline, home heating and other forms of energy used by Americans have seen a sudden increase and some like gasoline have historical highs. In 2000, the price of gasoline was $1.52 per gallon but this increased to around $2.71 in 2005, a whopping 52 percent increase. Thus adjusting the inflation rate, families used around $1,000 more on gasoline in 2005 than in 2000. Apart from the high gasoline costs, the costs for electricity, natural gas, heating oil and propane have also increased significantly. Adjusting for inflation, the price of natural gas cost around 69 percent higher in 2005 than it cost in 2000, heating oil at 73 percent higher, 59 percent higher for propane and an 8 percent increase for electricity (Johnson D. 2008).

The middle-class families also incur indirect costs due to the higher prices of energy. They include the higher flight fares, higher prices for gasoline and diesel for commercial fleets and a higher cost for industrial or commercial uses. Example is when these related costs are adjusted for inflation, they cost small businesses more than $130 billion in 2005 than in 2000. Assumedly, these costs are then passed to the passed to the consumer and thus will cost averagely $1,150 higher per household in 2005 than it was in 2000. Overall, the direct and indirect energy costs cost the middle-class families $2,360 more in 2005 than in 2000. This adds more strain to such kind of families ((Johnson D. 2008).

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