Association for Public Policy Analysis & Management

To what extent data support the Middle-Class Economics? What do we know about the relationship between the share of the middle-class household in a region and the region’s growth rate? Unlike inequality - which has been the hotly debated subject among policymakers and researchers, empirical findings on the middle class are rare. This paper asks whether the argument of the Middle-Class Economics is backed up by data in the context of U.S. region: does the region with a larger share of the middle-class experience higher growth rate? International research using national-level data suggest that a larger middle class may provide a positive economic outcome (higher GDP), but research at the sub-national level could tell different stories. This paper tries to provide empirical data both on the people share and income share of the middle-class household and examines whether these variables affect the future economic performance of the region – measured by per capita gross metropolitan product (PCGMP) and annualized average growth rate of PCGMP. Using panel data from U.S. Census and Moody’s analytics, the author finds that the positive effect of the size of the middle class at the national and U.S. state level does not hold between 1980 and 2015 at the U.S. metropolitan statistical area level. Instead, the author finds that the relationship between the share of the upper-class households in a region seems to have a positive effect on future growth. These relationships are sensitive to econometrical approach as well as different definitions of the middle class.