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New Clout of the 'Comfortable'

An emerging 'mass upper class' has already altered the socioeconomic ladder - and is now key to avoiding recession.

First, the United States economy created a stable working class. Then, after World War II, came the mass middle class. Now, it's busy again, forming what some observers are calling the world's first "mass upper class."

These are Americans who are comfortable, but not rich. They earn at least $100,000 a year - and they spend on waterfront vacations, expensive sport-utility vehicles, and houses bigger than their parents' were.

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Notwithstanding downdrafts on Wall Street and chill deflationary winds from Asia, America's mass upper class is probably here to stay - a permanent stratum of the economic bedrock that has continued to grow in size and influence.

"This is the new thing - this enormous class of people who are not rich but comfortable," says David Frum, senior fellow at the Manhattan Institute, a free-market-oriented think tank in New York.

Some analysts, moreover, see the buying habits of this group as a harbinger of the nation's economic growth rate, at least in the near future. If turmoil in the financial markets prompts this mass upper class to cut back, US consumer spending - which has served as a fire wall against global recession - will falter, they say.

The new economic significance of the $100,000-plus club has coincided with its rapid growth. In 1967, 3.2 percent of all US families told the Census Bureau they earned at least $100,000 (counted in inflation-adjusted 1997 dollars). Last year, 11.8 percent did - a huge rise in 30 years.

But even if they become nervous about the economy and trim spending, they are not likely to fall out of their newfound status.

"I have a hunch that when the bubble bursts, we'll go back to fewer million-dollar households," says Andrew Hacker, a political scientist at Queens College in New York. But the mass upper class looks here to stay, he adds.

That's partly because Wall Street gyrations affect people's wealth but not necessarily their income. Also, those in the mass upper class are often couples with two incomes, and dual-income households don't look likely to dwindle anytime soon.

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To make the ranks of this new segment of the population, it helps to have two things: a good education and a working spouse.

And while that's good news for highly educated, dual-income families, it's a terrible development for families involved in a divorce or headed by parents who haven't gone to college.

Wage creep

Moreover, incredible as it may seem, at the same time that the mass upper class is taking off, wages in general are growing more slowly than ever.

Take the average 30-year-old man. Between 1949 and 1976, his earnings nearly doubled to $31,100 (in inflation-adjusted 1997 dollars), calculates Frank Levy, professor of urban economics at the Massachusetts Institute of Technology in Cambridge. But between 1976 and 1996, his pay grew only 22 percent (again, adjusted for inflation).

"In the economy of the '50s, you just showed up at work every day, and the nature of the system guaranteed that you enjoyed a rising standard of living," says Mr. Frum of the Manhattan Institute. "That's not true anymore."

It's not just workers with few skills who find it hard to get ahead. Families headed by a single parent, especially a woman, typically get stuck in low gear.

That's the paradox of today's economy: John Kennedy's famous quip about the rising tide lifting all boats no longer applies, argues Professor Levy in a new book due out next month.

"The top gets more, and there's some group that gets left behind," he says.

Then there's the super-rich

Indeed, the very richest people in America - the millionaires and billionaires - continue to gain. In only two years, from 1994 to 1996, the number of households making $1 million or more nearly doubled, according to the Internal Revenue Service.

In today's edition, Forbes magazine reports that it took more than 5 percent more wealth this year to join the United States' elite 400 compared with 1997.

The growth of this top group makes dramatic reading. In 1982, Forbes counted 13 billionaires in the US. This year, it lists 179, headed by Microsoft chairman Bill Gates, who with $58 billion saw his wealth jump $18 billion in a single year. It takes $500 million just to make the magazine's top 400.

But even if the rich are getting rich, economists disagree whether the poor are getting poorer in an absolute sense.

The Census Bureau reports that the share of people under the poverty line actually shrank a little between 1996 and 1997. What is clear, however, is that the poor are falling further and further behind today's mass upper class.

View from the bottom rungs

Is that a bad thing? Economists disagree.

"Inequality, as such, I don't find all that alarming, providing that the people at the bottom are not getting worse off" in an absolute sense, Frum says.

"One important aspect is what happens to the welfare state," Levy counters. "If you say the notion of the welfare state at bottom is, 'There but for the grace of God go I,' then ... people have a lot more trouble identifying with that idea if their incomes are so high."

Still, it's the mass upper class that, for now, is rewriting the rules on everything from retailing to real estate (buying homes about one-third larger than those their parents owned).

"I call $100,000 the new minimum wage," says Mr. Hacker, author of "Money: Who Has How Much and Why." "I couldn't live in New York on less than that."

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