"My Income Has Increased, So Why Do I Feel Worse Off?"... The Middle Class Didn't Collapse, It Moved Upward [Weekend Money]

The Shrinking U.S. Middle Class: Not Moving Down, But Moving Up

The Real Divide Is Not Income, But Assets

AI’s Productivity Revolution Could Further Exacerbate Wealth Inequality

Even during economic booms, the phrase "middle class collapse" remains a recurring keyword in major countries. The core idea is that despite working hard, living standards remain stagnant and those in the middle are actually slipping downward. The "K-shaped economy," often mentioned in descriptions of the U.S. economy, paints a similar picture: the wealthy become wealthier (the upper arm of the "K"), the poor become poorer (the lower arm), and the middle becomes increasingly hollow. South Korea is no exception to this trend.

However, a recent report by Lee Youngju, a researcher at Hana Securities, titled "The Window of Asset Allocation: Rethinking the K-Shaped Economy," challenges this familiar narrative. The report suggests that we need to reconsider the K-shaped structure we've come to accept.

The Middle Class Hasn't Collapsed—It Moved Upward

The proportion of the American middle class has shrunk, but the percentage of the upper class earning over $100,000 has increased significantly.

The U.S. Census Bureau classifies households by annual income. As of 2022, in real terms, those earning less than $35,000 per year are considered low-income, $35,000 to $100,000 are middle class, and over $100,000 are high-income.

By this metric, the middle class has certainly shrunk. In 1967, the middle class accounted for 54.6% of all households; by 2022, that figure had dropped to 39.1%. At first glance, these numbers seem to confirm a "middle class collapse."

However, the report urges us to look at another set of numbers. The proportion of low-income households also decreased, from 32.3% to 23.3% over the same period. So where did the missing middle class go? Upward. The proportion of high-income households earning more than $100,000 nearly tripled, rising from 13.1% to 37.5%.

The hollowing out of the middle in the income pyramid didn't occur because people fell downward, but because they moved up. In effect, the middle class didn't collapse—it moved to a better neighborhood.

The report also clearly identifies the reasons for this phenomenon. The main factors are ▲ an increase in dual-income households and ▲ a higher level of education among women. Households that once relied on a single income began to have two earners, and the proportion of women with college degrees soared from 13% in 1970 to around 40% today. As the number of highly educated professionals grew, total household income was pulled upward. Moreover, these figures are all adjusted for inflation, meaning this is not merely an "inflation illusion."

Incomes Are Up, So Why Does Life Feel Tougher? The Real Issue Is Assets, Not Income

The top 10% own two-thirds of the U.S. economy. In contrast, the bottom 50% hold only about 2.5% of the total.

Despite these gains, many in the middle class still feel squeezed in their day-to-day lives. If incomes have clearly increased, why do so many people still feel that "life has gotten harder"?

The key point highlighted by the report is not income, but assets.

According to data from the U.S. Federal Reserve, as of the fourth quarter of 2024, the top 10% of households own about 67% of total U.S. household net assets. In contrast, the bottom 50% hold only 2.5%. Over the past 15 years, as ultra-low interest rates and abundant liquidity fueled surges in stock and real estate prices, those who already held assets became wealthier simply by holding on, while those without assets were left to shoulder the burden of rising prices.

The report redefines the lower arm of the "K." The truly disadvantaged are not those who simply earn less, but those who have missed out on opportunities to build assets.

Behavioral economics introduces the concept of "relative deprivation." People tend to judge their circumstances not by their absolute income, but by comparison with those around them. Even if one's salary increases, if the neighbors get rich faster through stocks and real estate, satisfaction actually declines.

Recently, this sentiment has manifested as "FOMO" (fear of missing out on asset appreciation). Social networking services (SNS) have expanded the pool of comparison, so that now people compare themselves not just to their neighbors, but to the top 1% of asset holders. Even those who have reached the middle class by income standards continue to feel anxious and deprived if they lack assets.

AI Could Turn the "K" Into an "I"

The key factors driving income growth are ① an increase in dual-income households and ② a rise in women's college enrollment.

So what lies ahead? The report identifies artificial intelligence (AI) as a variable that could further widen these gaps.

AI is a powerful technology for boosting productivity, but it seems unlikely that its benefits will be distributed evenly across society.

According to global investment bank Goldman Sachs, generative AI could affect roughly 300 million full-time jobs worldwide. In particular, repetitive work such as administration, accounting, and office tasks is expected to be most exposed to automation. In other words, jobs held by mid-skilled workers will be the first to be shaken.

Of course, the deployment of AI infrastructure—such as data centers, power grids, and semiconductors—will create new jobs and investments. However, the initial rewards will inevitably flow to companies and individuals who already possess capital and technology.

As a result, even within the middle class, the lived reality will be very different for those who have accumulated assets and those who have not. If this trend accelerates, the center of the class structure will become increasingly hollow. The report goes so far as to suggest that the "K" could be replaced by an "I," with society split vertically between the top and bottom.

Lee Youngju notes, "The true meaning of a K-shaped economy now lies not in 'who earns more,' but in 'who is able to capture the gains from rising asset prices and productivity improvements.' We are entering an era where it matters less which income bracket you fall into, and more which assets you hold."

This content was produced with the assistance of AI translation services.