Top 5 economic issues facing the middle class ahead of the 2020 elections

If you feel like you're running yourself ragged but aren't making headway, you're not alone.

The U.S. is experiencing one of the longest-running bull markets in its history, yet 40% of Americans recently said that they couldn't cover an unexpected $400 expense.

Even as the White House boasts about creating the strongest economy in decades -- with record-low unemployment rates and financial markets reaching new highs -- many middle class Americans say they feel left behind or find that they are “having to run harder to stand still.”

As the 2020 presidential election kicks up into high gear, here are what experts point to as some of the top economic issues that middle class families in America currently face. And with the financial unease that many people say they are feeling, these issues might have an impact on how they decide to vote.

5 economic issues facing the middle class ahead of the 2020 elections ABC News Photo Illustration, Getty Images

Slow-growing wages

For most middle-class families without high-return investment accounts or trust funds to rely on, their main source of income are their jobs. If wages stagnate or don't keep up with the cost of living, middle-class families generally feel the impacts hard.

“Income growth of the middle class has been slower than for both those above and below them,” Richard Reeves, a senior fellow at the Brookings Institute and the director of its Future of the Middle Class Initiative, told ABC News. "Since around 1980, the household incomes of that middle-class group has grown by 40%, as opposed to about double that for those above and below.”

The definition of middle class varies widely among economists based on a handful of factors. Here it is roughly defined as the middle 60% of households based on income in order to be as inclusive as possible.

"It is quite clear that the growth in household income in the middle has been slow, slower than in the past, and slower than other groups in society," he said. "There’s a version of having to run harder to stand still for the middle class.”

For many, this means having to increase the number of hours worked, he added.

The labor union UNITE HERE holds a rally for American Airlines food caterers to demand health care for the workers at Terminal 8 at JFK Airport in New York, Nov. 26, 2019. Corbis via Getty Images, FILE

The slow growth in wages is the single biggest economic issue hampering middle-class families, according to Elise Gould, a senior economist at the left-leaning think tank the Economic Policy Institute.

"Many families are still feeling the after-effects of the Great Recession," Gould told ABC News, referencing the downturn following the 2008 financial crash. "We’ve seen the economy grow greatly. ... We’re still not seeing a full recovery in terms of wages and living standards.”

“Most American families get their income from work," she added. "So I think we need to strengthen work and the wages that they get."

A 2019 Congressional Research Service report found that inflation-adjusted wages “stagnated or fell” for those in the middle and bottom income percentiles between 1979 and 2018, while they rose for those at the top of the distribution. According to the report’s data, overall median real-wages increased approximately 6% between 1979 and 2018. Real wages at the top 90th percentile, however, increased by approximately 38% during that same time.

Surviving paycheck-to-paycheck

Almost 80% of Americans now live paycheck to paycheck, meaning they have no significant savings, according to Peter C. Earle, an economic researcher at the independent think tank the American Institute for Economic Research. Moreover, approximately a third of those people living paycheck-to-paycheck are categorized as in the middle class based on their income levels, and about 75% of them are in debt. That means the vast majority of Americans have no significant savings to speak of to guard against a rainy day.

"Americans were treated to a sort of controlled experiment in the implications of this when the government shutdown caught hundreds of thousands of government employees -- many of whom are among those who live paycheck to paycheck -- flatfooted," Earle told ABC News via email.

Sudden policy changes or other unexpected economic circumstance changes "could land all the harder on households with no emergency [financial] cushion," he added.

A lack of savings and living paycheck-to-paycheck is also an issue as Americans are currently living longer than ever, and may face outliving their retirement funds or "face additional shortfalls if their investment returns fall short," Earle said.

Soaring health care costs

Healthcare is routinely at the top of the list of voters' concerns and for good reason.

"Increasing cost of health care and concerns of health care and access to affordable health care can cause anxiety and issue whether you use it or not," Reeves told ABC News. "Having insurance or health care is important to your mental quality of life, whether you use it or not."

The costs are so high that 25% of Americans say they "skipped necessary medical care" in 2018 because they were unable to afford the cost, according to the Federal Reserve's most recent Report on the Economic Well-Being of U.S. Households. In addition, 20% of adults in the U.S. reported having major, unexpected medical bills to pay in 2018.

In fact, medical bills are the No. 1 cause of personal bankruptcy among Americans, according to a 2019 study from the American Journal of Public Health.

Healthcare costs can disproportionately impact the lives of middle class Americans because they generally don't have a Medicare safety net or are able to afford concierge health services like the wealthy.

Campaign signs for 2020 Democratic presidential candidates stand in snow outside a home in Des Moines, Iowa, Jan. 30, 2020. Bloomberg via Getty Images, FILE

Moreover, middle class Americans are paying a greater percentage of their earnings than ever before for health care, according to a report by The Commonwealth Fund, which said that rising premium and deductibles contributions have outstripped wage growth over the past decade.

"In terms of quality of life, health is obviously huge and important," Reeves said.

The erosion of free markets and spiking hidden costs

In addition to stagnating wages, depleted savings and soaring health care costs, some experts say issues with free markets disproportionately impact the middle class.

Thomas Philippon, a professor of finance at New York University's Stern School of Business, said the illusion of free markets and the hidden costs that the middle class picks up as a result cost the median American family approximately $5,000 a year.

"U.S. markets have become less competitive," Philippon told ABC News. "If you want to get a sense of what that means, my estimate is that if you could turn the clock back to 2000, if you could return the market to the degree of competition we had 20 years ago, you would essentially increase the income of the median family by about $5,000 a year."

"The U.S. used to be a place where access to internet was very cheap. Around [the year] 2000 it was one of the cheapest places in the world among advanced economies," he said. "Today, it is one of the most expensive, it is more than twice most countries in Europe."

The figures are similar for transportation and health care costs in the U.S. compared to Europe, Philippon said.

"Also, if the markets were more competitive, the whole economy would be more dynamic," he argued. "There would be more hiring, which would also bring up the wage."

A 2018 report from the Brookings Institute found that over the past few decades “there have been troubling indications that dynamism and competition in the U.S. economy have declined.” It found that in the airline sector, the top four first served 43% of the market in 1985, but that share had risen to 72% by 2017 due to decades of industry consolidation.

Philippon ties the decline in market competition to an increase in lobbying.

At the same rate that U.S. markets are becoming less competitive, Philippon said there has been a surge in companies "financing political campaigns."

"If you think about things that have changed drastically in the past 20 years in the U.S., the amount of lobbying and campaign spending and the fact that we have a decreasing competition," he said. "That's not a coincidence."

Work-life balance and respect

Though oftentimes harder to measure, experts said things like respect, work-life balance and family are increasingly becoming economic issues that cause disproportionate suffering for middle-class Americans.

"Time is the ultimate currency of economics," Reeves, of the Brookings Institute, told ABC News. "The issue of time is almost like the other side of the coin from the issue of wages and income: if you can only get a decent income if you put a huge amount of hours in."

An attendee holds up a sign that reads "Jobs! Jobs! Jobs!" during a campaign rally for President Donald Trump in Des Moines, Iowa, Jan. 30, 2020. Bloomberg via Getty Images, FILE

"Work-life balance is not really so much an issue for the people at the top, although they complain about it a lot," Reeves said, noting that they can afford the childcare and other expenses.

He added that "family is an economic issue as well as a social issue," because "when people feel their wages are higher and likely to rise, they are more likely to have stable families."

"These issues around respect and relationships are also hugely important," Reeves said, even if these issues aren't easy to calculate in economic terms.

Working-class and middle-class families "sometimes feel they are looked down upon by policymakers and the coastal elite," Reeves added, noting that the there is a sentiment that the "almost-automatic respect" paid them is gone and "now that the attention is paid to people at the top."

While these issues impacting the middle class may be seen as social, they are often tied to economic status.

"The political economy of the middle class is not just about jobs and wages, it's also about communities and families and respect," he said. "They shouldn't be left off the table just because they are difficult to measure."

Ultimately, Reeves said, "that sort of middle-class angst and middle-class pain are reflective of all of those factors."

Major future economic challenges

In January 2020, President Macron asked us to organise and head a commission to address the structural challenges for the global economy. At that time, we didn't know that Covid-19 would create an immediate global crisis (see the Vox section on economics in the time of Covid-19 here) but, as the acute impact of Covid-19 fades, the problems we were tasked to investigate are still with us. The need for creative and effective policy solutions is even more urgent.

We had free rein in choosing the commission’s members and full independence in stating our conclusions, which were published in Blanchard and Tirole (2021). Our report is divided into three sections, representing the three most pressing challenges that we identified. Our colleagues Christian Gollier and Mar Reguant were lead authors for the section on Climate change; Dani Rodrik and Stefanie Stantcheva had the same role for the section on Economic inequality and insecurity; and Axel Börsch-Supan, Claudia Diehl, and Carol Propper acted as leads for the section on Demographic change. A further 17 distinguished economists from around the world contributed to the final report, meaning the team was one third French, one third American, and one third non-French European. This brought a broad set of opinions and evidence to bear.

Our conclusions and recommendations apply particularly to France – but also to Europe and the world economy. These are global challenges, and we can learn from local or regional successes. Also, many of our policy prescriptions will require international cooperation and support, particularly for the policy solutions to the challenge of climate change.

There is not space to explore all our conclusions in detail. Below, a summary that we hope will inspire you to read the full text. The report can be downloaded here in full.

Climate change

Here we can clearly see the causes and the impact of procrastination. There is a general disconnect between the acceptance that global warming is happening, and the consequential need to make hard policy choices to fight it. A lack of transparency about the costs of these measures has led many people to focus on the costs that are visible – such as carbon taxes – rather than on those costs which may be larger, but are harder to see.

The commission made three recommendations:

Carbon pricing done well . Though unpopular with many people (economists are a notable exception), carbon pricing is essential because it incentivises households to change behaviour, researchers to innovate green technologies, and firms to adopt those innovations. But carbon pricing is currently done badly: the price has been too low, and there are too many exemptions and subsidies. Effective pricing will need both a border adjustment mechanism to avoid carbon shifting by emitters, and policy to mitigate the distributional implications of a higher carbon price.

. Though unpopular with many people (economists are a notable exception), carbon pricing is essential because it incentivises households to change behaviour, researchers to innovate green technologies, and firms to adopt those innovations. But carbon pricing is currently done badly: the price has been too low, and there are too many exemptions and subsidies. Effective pricing will need both a border adjustment mechanism to avoid carbon shifting by emitters, and policy to mitigate the distributional implications of a higher carbon price. R&D subsidies, standards, and bans . Carbon pricing alone cannot sufficiently accelerate green R&D and carbon abatement, and so targeted subsidies and bans are justified. At the European level, two new agencies could improve governance: one to fund high-risk R&D, the other to inform citizens and officials about the costs of alternative methods to achieve the reductions in emissions that we require.

. Carbon pricing alone cannot sufficiently accelerate green R&D and carbon abatement, and so targeted subsidies and bans are justified. At the European level, two new agencies could improve governance: one to fund high-risk R&D, the other to inform citizens and officials about the costs of alternative methods to achieve the reductions in emissions that we require. The role of France and Europe. One nation acting alone has little direct impact on this challenge. But committed leadership can affect regional and global climate policy, both by leading abatement and innovation and highlighting a comparative lack of achievement in other countries. While it is the duty of all to behave in a socially responsible way, governments should lead by example and fully assume its responsibility rather than passing the buck to the private sector or public agencies, which have neither the tools nor the legitimacy to fix the market failure.

Inequality

In France (and elsewhere), research shows that the public does not believe there are equal educational and job opportunities, or adequate social mobility to mitigate the problems of inequality. Sadly, these perceptions are broadly correct.

The traditional remedy for inequality has been to double down on redistribution and protection, policies that focus on mitigating the distributional effects of production. Our report argues instead that policy should focus more on what happens before production occurs (creating more equal life chances or improving education). It can also influence the nature of production, creating more good jobs and more equal access to good jobs.

The commission made four recommendations:

Equal opportunities . Policy prescriptions in this area are hardly original but are not currently given sufficient weight. We know much about how to reduce educational inequality. Inheritance tax is poorly designed and badly explained, and so it suffers from too many loopholes and lukewarm public support. To make its goal clearer and increase support, inheritance tax revenues could be explicitly allocated to financial redistribution that fosters equal opportunity.

. Policy prescriptions in this area are hardly original but are not currently given sufficient weight. We know much about how to reduce educational inequality. Inheritance tax is poorly designed and badly explained, and so it suffers from too many loopholes and lukewarm public support. To make its goal clearer and increase support, inheritance tax revenues could be explicitly allocated to financial redistribution that fosters equal opportunity. Fairer taxation. Rather than imposing a higher tax burden, taxation that has the goal of reducing inequality should be enforced better – for example, using artificial intelligence, better information exchange (third-party reporting, international cooperation), and international agreements.

Rather than imposing a higher tax burden, taxation that has the goal of reducing inequality should be enforced better – for example, using artificial intelligence, better information exchange (third-party reporting, international cooperation), and international agreements. Prepare workers for better jobs . We can do much more to improve the design of training – for example, through better interactions between educators and private-sector employers.

. We can do much more to improve the design of training – for example, through better interactions between educators and private-sector employers. Stimulate the creation of good jobs. We should not assume that the organisation of firms and the nature of technological progress or trade rules is given. There is a role for the state to intervene to influence the nature of production, either through traditional methods (training, capital-labour taxation, experience rating) or through more targeted subsidies.

Demographic change

On average we live longer, healthier lives. This is good news. But this also requires we maintain the right balance between work and retirement. If more people live longer after they retire, this implies a decrease in the benefits they receive in retirement, an increase in contributions while they are working, or that they work for longer before they retire to maintain financial balance, now and in the future. This looming crisis has been particularly controversial in France, which has a very low activity rate among 55- to 64-year-olds.

Ideal pension reform implies a unified, transparent, and fair system that delivers flexibility in the choice of retirement age versus the level of retirement benefits. It should also increase supply and demand for senior workers. It should recognise the large differences in life history and life expectancy among the population. But public perception is that current reform proposals are technocratic and lack transparency.

Our report makes a series of more detailed recommendations for this challenge – partly because, for these problems, painful reforms have been attempted with limited success. Among those ideas:

Individual flexibility with transparency . Workers would accumulate points on an individual account over their entire work life, claiming a pension at the earliest eligibility age or later, and could continue to accumulate those points if they continued to work.

. Workers would accumulate points on an individual account over their entire work life, claiming a pension at the earliest eligibility age or later, and could continue to accumulate those points if they continued to work. Redistribution towards low earners . Low-income workers, or those who for some unavoidable reason have a chequered work history would receive ‘bonus points’ when they retire. But the incentive to work needs to be preserved and so, even for low incomes, pensions would increase with points earned.

. Low-income workers, or those who for some unavoidable reason have a chequered work history would receive ‘bonus points’ when they retire. But the incentive to work needs to be preserved and so, even for low incomes, pensions would increase with points earned. A consistent dependency ratio to maintain economic balance . Imagine a transparent rule that maintained a 2:1 ratio of work compared to retirement years – so if the average life expectancy increased by three years, the retirement age would rise by two years, funding an extra year of retirement (of course, public opinion may demand a smaller increase in the retirement age). An independent governance structure designed to balance societal preferences with financial stability would manage this trade-off.

. Imagine a transparent rule that maintained a 2:1 ratio of work compared to retirement years – so if the average life expectancy increased by three years, the retirement age would rise by two years, funding an extra year of retirement (of course, public opinion may demand a smaller increase in the retirement age). An independent governance structure designed to balance societal preferences with financial stability would manage this trade-off. A treatment of penibility that is decentralised at the industry or firm level , so as to incentivize better job condition and to avoid cross-subsidies among industries.

, so as to incentivize better job condition and to avoid cross-subsidies among industries. Work at advanced ages. For many older people, work is stressful and painful. Better healthcare for chronic diseases, better continuous training, and more flexible working practices for seniors would make it more attractive for older people to continue to work, reducing the burden on the pension system and enhancing their incomes.

Conclusion

All three of our challenges are time bombs. Their immediate effects are much weaker than their long-term ones, and so decision-makers procrastinate over policies that could mitigate the worst effects. They are also complex problems, meaning that if policymakers are to make those hard decisions, they must do this under uncertainty and often in the face of public resistance. Nevertheless, our commission found that many potential solutions to these problems, though sometimes expensive or unpalatable, exist.

References

Blanchard, O and J Tirole (2021), Major Future Economic Challenges, France Stratégie.

The Economic Problem: Definition & Examples

A want is something that we would like to have, but is not necessary for survival.

To find out the answer to our question, let's first try to classify human desires into needs vs. wants. A need is defined as something necessary for survival. It may sound vague, but essential clothing, shelter, and food are usually classified as needs. Everyone needs these basic things to survive. It's that simple! What are wants then? A want is something that we would like to have, but our survival does not depend on it. You may want to have expensive filet mignon for dinner at least once, but it is definitely beyond what would be considered a necessity.

Well, you are certainly in the right place to find the answer to this question at the right time. Because if you are reading this article, this means that you are interested in Economics. Economics is a social science that studies how people attempt to satisfy their unlimited wants by carefully allocating scarce resources.

Scarcity occurs when society cannot fulfill all its wants because resources are limited.

The economic problem definition is straightforward as it stems from the limited nature of resources that our planet has conceived over millennia. Economists call this lack of resources scarcity. But here's the real kicker: the global population is rising, and everyone has wants and needs. Are there enough resources to satisfy all those desires?

Our modern lives have become so comfortable that we often don't stop to think whether another thing we recently bought was actually a necessity or simply a want. It may well be that an increase in comfort or convenience provided you with some happiness, albeit short-lived. Now, imagine the extent of everyone's wants and wishes. Someone has smaller ones, but someone has larger ones. The more you have, the more you want; this is the fundamental economic problem. While your wants are unlimited, the world's resources are not. Is there hope for the future of humanity to sustain itself without depleting the vast resources of the precious planet we call home? This article will help you find this out!

How should the factors of production be allocated to produce the required things? What would be the efficient way to make food, and what would be the efficient way to make cars? How much labor force is there in a community? How would these choices impact the affordability of the final product? All these questions are densely combined in one question - how to produce?

This is the first question that needs to be answered if society is to allocate its resources efficiently. Of course, no society can sustain itself if all the resources are spent on defense, and none are spent on food production. This first and foremost question helps to identify a set of things that society needs to sustain itself in balance.

Bear with us and look at Figure 1 below to see how our wants are connected to the three basic economic questions.

What do they have to do with the fundamental economic problem? Well, these questions provide a basic framework for allocating scarce resources. You may think, wait a minute, I scrolled all the way here to find some answers, not more questions!

Last but not least, the question of who will be the final user of the things made is important. The choices made when answering the first of the three questions mean that the scarce resources were used to create a set of particular products. This implies that there may not be enough of one specific thing for everyone. Imagine a lot of resources were allocated for food production. This means that not everyone in that society can have a car.

The Economic Problem: The Factors of Production

Now, you may be wondering, what exactly constitutes these scarce resources we are trying to use to produce the things we need? Well, economists refer to them as factors of production. In simple terms, factors of production are the inputs used in the production process.

There are four factors of production, which are:

Land Labor Capital Entrepreneurship

Figure 2 below shows an overview of the four factors of production.

Fig. 2 - The four factors of production

Factors of production are the inputs used in the production process.

Let's briefly go over each of them in turn!

Land is arguably the densest factor of production. It contains the land for agricultural or building purposes, or mining, for example. Land, however, also includes all natural resources such as oil and gas, air, water, and even wind.Labor is a factor of production that refers to people and their work. When someone is employed producing a good or a service, their labor is an input into the production process. All the jobs and professions you can think about are classified as labor, from miners to cooks, to lawyers, to writers.Capital as a factor of production includes items like machinery, equipment, and tools utilized to produce the final good or service. Do not confuse it with financial capital - money used to finance a particular project or a venture. The caveat with this factor of production is that it has to be manufactured before it can be used as an input into the production process.

Entrepreneurship is a factor of production as well! It is distinguished from the other factors of production because of three things:

It involves the risk of losing money that the entrepreneur invests into the project. Entrepreneurship itself can create opportunities for more labor to be employed. An entrepreneur organizes the other factors of production in a way that would yield the most optimal production process.

The four factors of production are: land, labor, capital, andentrepreneurship.

We know that by this point, you have probably lost all hope of finding the answer to the questions of resource allocation posed above. The truth is, the answer is not that simple. To put it short, you have to study economics as a whole to be able to answer these questions, at least partially. Economic models like the most straightforward supply and demand model to the complex models of aggregate investment and saving all contribute to solving the problems of scarce resource allocation.

To learn more on these topics, check out our articles: - Scarcity - Factors of Production - Supply and Demand - Aggregate Supply - Aggregate Demand

The Economic Problem Examples

Let's go over some examples of the fundamental economic problem that apply to you on a daily basis.

The Economic Problem of Scarcity: Time

An example of an economic problem you may experience daily is how to allocate your time. You need to allocate your time to many things, from spending time with family to studying, to exercising, to doing chores. Choosing how to allocate your time between all these is an example of the fundamental economic problem of scarcity.

The Economic Problem of Scarcity: Opportunity Cost