Middle-class Americans aren’t keeping up with the cost of living — and some experts say US government policy is to blame. Is that fair?

Is the government to blame for middle class struggles?

Between 1979 and 2024, productivity in the U.S. rose 80.9%, while hourly pay grew by only 29.4%, according to the Economic Policy Institute.

But why have wages failed to take off? Some might say that interest rate policies are partly to blame.

It's the job of the Federal Reserve to oversee monetary policy and keep unemployment as low as possible while also keeping inflation in check. And the Fed uses a variety of data to inform its decisions, including the unemployment rate.

The Federal Reserve Bank of San Francisco says that the natural rate of unemployment has fluctuated between 4.5% and 5.5% over the last century. The problem is that it’s common for the actual rate of unemployment to be higher than the recorded natural rate. This is problematic for middle class workers because wages tend to grow more quickly during periods when unemployment is low.

When unemployment is high, employees lose bargaining power. It's more difficult to negotiate a raise or find a higher-paying job elsewhere when there aren't many jobs to be had. An adjustment of the Fed's interest rate policies could potentially lead to lower rates of actual unemployment in the long run. And that could contribute to more solid wage growth.

Some may also be quick to point to the expansion of trade with other countries as a reason why middle class wages are stuck. When it's easy to procure goods at a low cost from outside of the U.S., there's less motivation to raise wages domestically.

Another factor is a decline in the share of workers who are represented by a union. In 1983, roughly 20% of U.S. workers belonged to a union, says Pew. By 2023, only 10% of workers were union members. And the fact that many companies actively try to prevent workers from unionizing hasn't helped matters.

So does all of this mean that the government is to blame for wage stagnation among the middle class? Not necessarily. But it’s clear that a shift in policies could help the middle class gain buying power. For example, fining companies that interfere with unionizing efforts could help eliminate that roadblock, since union membership can correlate with higher pay. The Bureau of Labor Statistics reported last year that non-union members' median weekly earnings were only 86% of the wages earned by union members.

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How the middle class can improve their finances

Things may be looking somewhat bleak for the middle class based on all of this data. But if you're part of the middle class, there are steps you can take to improve your financial picture.

First, work with a financial adviser to manage your money and save for major goals. It's a myth that these professionals are reserved only for the wealthy. An adviser might help you make the most of a limited income so you're able to live comfortably now while setting yourself up for a comfortable retirement.

Next, be careful with debt. Experian reports that as of 2023, the average U.S. consumer owed $6,501 on their credit cards. Steering clear of high-interest debt could make it easier to build savings, because you’re not handing over a large chunk of money to a credit card company each month.

Finally, try setting yourself up with additional income streams on top of your regular paycheck. The booming gig economy makes it easy to earn a side income. And with the help of a financial adviser (or on your own, if you have the skills), you can set up some passive income investments that include dividend stocks and bonds.

Even if you’re not quite ready to invest, because interest rates remain high, it’s a good time to have money in the bank. Income you earn from a side hustle could go into a CD for a guaranteed short-term return. And that could give you more breathing room in the face of rising expenses.