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The Decline of Colorado’s Middle Class

Colorado

SOURCE: AP/Ed Andrieski

Two men eat their lunch at a McDonald's restaurant as protestors picket in the background in Denver, Colorado, on Thursday, December 5, 2013. Demonstrations were planned nationwide in support of raising the federal minimum wage from $7.25 to $15.

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Endnotes and citations are available in the PDF of this issue brief.

Colorado’s middle class is struggling. In the wake of the Great Recession, middle-class Coloradans have seen their incomes fall to levels not reached in nearly three decades, and their share of the state’s total economic pie has remained stuck near record lows. These trends are particularly troubling because a strong middle class drives economic growth and boosts economic mobility, but they are reversible if better policy choices are made. Among the clearest indicators of the struggles of Colorado’s middle class is the decline in the state’s median income. In 2012, a typical Coloradan household earned $57,255, which, while still above the national median, was 15.4 percent below what a typical household in the state had earned only five years earlier, before the start of the Great Recession.

COmiddleclass_fig1

While the Great Recession was quite harmful on its own, it was particularly devastating because it came after a period in the early 2000s in which middle-class incomes stagnated. In fact, the 2012 median income in Colorado fell below its 1985 level, after accounting for inflation. That means middle-class Coloradan households are now earning less than they did nearly 30 years ago—even though the state’s economy has grown significantly over this period.

Colorado’s middle class, however, has seen very little of this economic growth because an ever-increasing share of the state’s economy has gone to those at the very top. In 1980, the middle 60 percent of Coloradan households brought home roughly 52.5 percent of all income earned in the state; last year, it brought home only 47.3 percent. In contrast, the share of income going to the top 20 percent of Coloradans has increased sharply, rising from 42.7 percent of total state income in 1980 to more than 49.2 percent today.

And even in this top group, most of the gains have gone to the very highest income earners. Economist Emmanuel Saez estimates that when looking at the United States as a whole, the share of the nation’s total income going to the top 1 percent has more than doubled over the past four decades. Meanwhile, middle-class households across the country have experienced losses similar to those seen among Colorado’s middle-class families.

COmiddleclass_fig2

Fortunately, these trends can be reversed. The levels of inequality currently seen in both Colorado and the United States as a whole are not the inevitable byproducts of economic growth. Rather, they have in no small part been created by conscious political choices that have often put the interests of those at the very top ahead of working families and their needs. Over the past few decades, effective federal tax rates have been reduced significantly for the affluent but relatively little for the middle class. In addition, middle-class Coloradans actually pay a greater share of their income in state and local taxes than do the wealthy.

Similarly, policymakers have allowed the value of the minimum wage to erode over time. While Colorado’s indexing of its state minimum wage to inflation in 2006 was a significant step forward, the current value of the state minimum wage is still only $7.78 per hour. This is slightly more than the federal minimum wage of $7.25 per hour but much less than the inflation-adjusted value of the minimum hourly wage guaranteed to workers by federal law in 1968—approximately $10.72 per hour.

This means that minimum-wage workers in Colorado now earn about 27 percent less in real terms than they would have in 1968, and even if they work full time all year, they will only earn approximately $16,180, or $3,350 below the federal poverty line for a family of three. A higher minimum wage would help not only those at the bottom but also those in the middle because it sets a floor for all workers and has spillover effects that cause employers to raise wages for many workers who earn well above the minimum wage.

But among the most important—though often overlooked—policy choices that have harmed the middle class are those that have weakened unions by making it harder for workers to join them. Unions are critically important to the health of the middle class because when unions are strong, they fight for key middle-class interests in both the workplace and the political arena. They work to ensure their members are paid fairly, have access to essential benefits, and are provided basic workplace protections, and in doing so, they raise standards that can benefit nonmembers as well. Unions help strengthen the middle class via the political process by encouraging greater worker participation in politics and championing programs essential to the middle class, such as Social Security, Medicare, and the minimum wage.

COmiddleclass_fig3

It is no coincidence, then, that the decline in national union membership over the past several decades has strongly correlated with the decline in the share of income going to the middle class. Research by Bruce Western of Harvard University and Jake Rosenfeld of the University of Washington has even estimated that the decline of organized labor has contributed approximately as much to the growth of inequality as have the increasing monetary returns to education that tend to disproportionately benefit those at the very top.

As seen in Figure 3, this has been true in Colorado as well. As unions have weakened, so has the middle class, while more and more of the state’s economic growth has been rerouted to the wealthy.

Conclusion

Addressing these issues and rebuilding the middle class in states such as Colorado will not be easy, but it must be done if the middle class is to return to its essential role as a driver of broad-based economic growth. Increasing the education levels of Colorado’s residents is, of course, important to supporting the middle class, but there are a host of other policies that play just as important a role. For a start, elected officials should work to actively strengthen workers’ bargaining rights and should seek further increases in the minimum wage. A number of other state-level policies, such as guaranteeing paid sick leave, boosting retirement savings, and more fairly allocating money for education, would all also work to bolster the health of the middle class in both the short and long runs.

David Madland is Director of the American Worker Project at the Center for American Progress Action Fund. Keith Miller is a Research Assistant with the American Worker Project.

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