Feeling Low in the Middle Class

Wednesday, Oct. 4, 2006 | John Middleton never thought it would be like this. He and his wife make about $70,000 combined each year – placing them squarely in the middle class. But he said they live “like the working poor” in San Diego. Until his father died recently, leaving them some money, Middleton said he used to have to use the services of the Money Tree to float his bills each month.

Middleton grew up in a poor family in Paradise Hills. He took out sizable college loans to finance his education in hopes that a degree might boost his earning power. Now an English teacher at University City High School, Middleton and his wife, who works in the deli at Henry’s Farmers Market, rent an apartment in Mission Hills. That cuts their gas bills since both of their jobs are nearby. And buying a home is out of the question.

It hasn’t always been so tough for teachers and other traditionally middle-income workers to not only technically be in the middle class, but to feel like they are.

Stagnant middle-income job growth and staggering home prices in San Diego County have changed the face of the middle class. While housing prices surged more than 210 percent between 2000 and 2005, the median household income crept up just 8 percent.

“In San Diego, the middle class has been hit by a double whammy,” said Julian Betts, professor of economics at the University of California, San Diego.

And with major shifts in the make-up of the county’s job market since the 1950s, San Diego has morphed from a proportional economy to what many economists term an hourglass economy, with growing upper and lower classes on either side of a dwindling middle class.

Middle-class incomes have kept such poor pace with the housing market prices that many households in the middle class have seen their options limited to spending a disproportionate amount on housing – drastically limiting their other consumer spending – or leaving the county.

Alan Gin, a University of San Diego economist, said when most people think about “middle class” designation, they’re actually thinking about the buying power associated with income – the ability to realize the American Dream. That has traditionally meant being able to own a home, go on vacation and send the kids to college, he said.

“It’s a paradox here because if you ask Americans, ‘Do you consider yourself to be upper-, middle- or lower-class?’ almost everyone will say ‘middle class,’” Betts said. “We have this belief that in America we don’t have classes the way they do in Great Britain.”

But the polarity between the upper class and the lower class is becoming more pronounced as those in the middle are squeezed. In 2000, the middle 50 percent of incomes in the county ranged from $25,000 to $80,000. That meant a quarter of San Diego’s households made less than that range, and a quarter made more.

But according to last year’s data, that middle chunk now ranges from $30,000 to $100,000. More households are making less than $30,000, and more households are making more than $100,000, than they were five years ago, according to Gin’s analysis of the Census numbers.

Such a dramatic, $70,000 span prompts Gin to wonder if that group of households can really be called the “middle class” anymore.

“It kind of assumes a normal distribution,” Gin said. “We’re getting a bunch of people at the high end, a bunch of people at the low end. It’s more difficult now to get into the middle class. It’s pushing more people down toward the end.”

Another formula used to define a household as middle-income is to determine if it falls within $20,000 of the area’s median income. For San Diego County, the median wage for households was $56,335 in 2005, according to census data. So the middle-class designation would include households roughly earning between $35,000 and $75,000 annually – about one-third of the county’s households last year.

Despite the popularity of the buying-power, “American-Dream” definition of the middle class, Gin thinks the best approach is still to measure a household’s actual income. Then, the important question is how that income stacks up against the costs of living in the area.

As far as purchasing a home goes, the answer is not very well. The traditional rule of thumb when budgeting housing costs is to spend no more than one-third of a household’s income on a mortgage or rent payment.

But nearly half of the county’s homeowners with a mortgage spent more than 30 percent of their income on housing costs in 2005, the U.S. Census Bureau revealed in data released Tuesday. And 55 percent of renting households paid more than 30 percent of their income to their landlords.

Another rule of thumb cautions homebuyers against spending more than three or four times their incomes on a home. For someone earning the county’s median income, $56,335, that would mean spending no more than about $200,000. But the median price for a home so far this year is $493,000, according to DataQuick Information Systems.

And only 9.4 percent of the county’s households earn more than $150,000 annually, the income level that would make the median home price accessible.

As San Diego’s home prices have swelled, the number of jobs traditionally considered middle-class has dwindled.

Jobs in the manufacturing sector have plummeted since the late 1950s, when 30 percent of the employment in San Diego was in manufacturing, said Marney Cox, chief economist for the San Diego Association of Governments. Of those jobs, 80 percent were defense-related.

“We built the middle class in the factories of America,” said Edward Leamer, economist at the University of California, Los Angeles.

Now, only 10 percent of the county’s jobs are in manufacturing, and just 20 percent of those are defense-related. The rate of decline accelerated in the early ’90s with the end of the Cold War and the decreased demand for munitions. At that time, about half of the defense-related jobs disappeared, and San Diego today has about 20,000 jobs in the sector.

But the losses of manufacturing jobs were tempered with the region’s job gains in new fields. Now, more than 61,000 jobs exist in the communications, software, and biotechnology and pharmaceuticals sectors, with average wages around $112,000, $82,000 and $80,000 respectively, according to a recent SANDAG study.

These jobs pay more than the defense-related manufacturing jobs they replaced. SANDAG’s most recent average wage recorded for the defense and transportation equipment sector’s 20,301 jobs is $71,185.

And a lot of the jobs that have been created in the last few years don’t pay nearly as well as even the median wage. The lowest average wage in SANDAG’s study was in the entertainment and amusement sector. With more than 104,000 jobs in the county, this group of jobs has an average annual wage of $16,143. And the 33,000-plus people working in travel and hospitality make an average of $27,798. Those industries have seen job growth-rates of 24 percent and 11.7 percent, respectively, since 2001.

Cox said the dwindling levels of middle-class jobs and the inability of most technically middle-class households to afford a home here has convinced some to leave San Diego for places like Temecula and Murrieta or Imperial County.

“We’re beginning to see some out-migration to some more affordable housing markets,” he said.

Deme Hill and her husband are among those who’ve left the county. They recently moved out of their 1968 three-bedroom, two-bath home in Spring Valley to a brand new, six-bedroom home in San Jacinto, a small community near Hemet in Riverside County. With five sons ranging in age from 3 to 12, Hill said they couldn’t afford the $600,000 home they’d need in San Diego to fit their family.

“We just had no room in the house with all those kids,” she said.

Now, Hill and her husband each commute to San Diego. Hill drives her SUV to North County, where she works for the state Department of Corrections as a parole officer. That commute costs her about $100 in gas each week – she tops off her tank every day. Her husband commutes for about $100 a month to downtown San Diego in a van he rents with several other commuters.

Instead of leaving, some lower- and middle-class workers hope for pay raises or a chance to find a better job. But Betts said the distinctions between each socioeconomic class become starker as jobs require more specialized training and skills.

And Gin said even with that training, the jobs that almost guaranteed middle-class wages for previous generations – like manufacturing and trades – no longer promise upward mobility.

“It’s now more difficult to get into the middle class,” he said. “In the past, when you graduated from high school and decided not to go onto college, there was still a chance you could earn your way into the middle class.”

Economist Murtaza Baxamusa of the Center on Policy Initiatives, a think tank that advocates for the working poor, said low-income workers sometimes don’t even have time to take a restroom break, let alone to study something that would allow them to gain those good skills.

“There is no way for them to become something more than they’re doing,” Baxamusa said.

Cox, from SANDAG, said many people will have to reevaluate the buying power associated with the middle class – a household earning the median income is just not able to purchase a home here. And they will probably have to think about living in an urban setting.

For some, it’s worth it. Middleton, the teacher, has his heart set on staying around for a long time. There are some trade-offs, he said, that make living in San Diego worth it.

“Because of where I work and the kids I teach, you’d have to get a crowbar to get me out of here,” he said.

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