The Difference Between Class & Income

Business Insider is stunned by the notion that Silicon Valley residents who earn $400,000 a year consider themselves middle class. Yet they are; the only reason Business Insider doesn’t think so is that neither it nor Palo Alto Online — the source of Business Insider‘s data — understands the difference between class and income.

According to the Pew Research Center, “middle class” includes families of four that earn $48,000 and $144,000. But that’s not middle class; that’s middle income. While classes and incomes can be correlated, they are not the same. Social classes include upper, middle, and lower, but most of lower being working class.

The working class includes people who earn incomes through manual labor and who generally do not have college degrees. But some of them may earn a lot of money, such as the Long Island Railroad conductor who earned $239,000 in 2009.

The upper class is basically people who don’t have to work to earn money, usually because they were born into wealth. While they earn money from their investments, presumably sometimes some of them don’t earn Pew’s $144,000 threshold for an upper-income family of four.

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This is more than just a quibble because working-class, middle-class, and upper-class people tend to have very different tastes and preferences. A working-class person who manages to earn $239,000 a year still shares more preferences with working-class people than upper-class people. An upper-class person who doesn’t earn much money one year still has tastes similar to other upper-class people.

But some preferences go across class boundaries, and one of them is for home ownership — and, in most cases, single-family homeownership. The point Palo Alto Online was trying to make was that people who earn $400,000 a year in Palo Alto still have a hard time buying a home. Since the median home there costs more than $3 million, a family earning $400,000 would have to spend 7-1/2 times their income to buy a median home, and under present-day mortgage rules, lenders would not loan them the money to do so unless they made more than a 50 percent down payment.

Contrary to Pew’s claims, the middle class isn’t shrinking; it’s growing. According to table S1501 American Community Survey, 31.2 percent of Americans 25 years or older had a bachelor’s degree or better in 2016, compared with just 27.0 percent in 2006. What’s shrinking, thanks to government-induced housing shortages and other onerous regulation, is everyone’s ability to achieve their dreams regardless of their class.