Blog
What Does it Mean to be in the Middle?

Mobility and Vulnerability in Latin America and the Caribbean

by Luis F. López-Calva

Luis-Felipe Lopez-Calva [1]

The concept of social class and specifically middle class, has been widely discussed in sociology and other social sciences, but mostly ignored in modern economics. In practice, the middle class has been defined in terms of income, consumption patterns, occupational status, or even by using self-identification. Regardless of which definition is used, the measurement of middle class is dependent on a particular period and place, and it is determined by several factors, such as history, culture and the development stage of a society.

Analysis of the middle class emerges as a central issue given the strong influence this social group has on society, politics, and the economy. Much literature (Easterly 2001) suggests that the middle class helps to produce economic benefits and foster economic development, through its emphasis on human capital investment, consumption and savings, which, in turn, incentivizes a virtuous circle contributing to further growth. Other authors (Birdsall 2010) suggest that the middle class constitutes the backbone of democracy ensuring social and political stability by fostering social cohesion and mitigating tensions between the poor and the rich. As political scientists suggest, a strong and stable middle class is usually accompanied by a more stable democracy. In order to test the validity of these hypotheses, however, one first has to define what it means to be middle class.

Over the past decade several countries in Latin America have accomplished important reductions in poverty and inequality and as a result policy makers are now confronting new challenges, and seek to understand problems they face from a political economy perspective. The simultaneous emergence of improved data quality and availability has sparked a surge in literature addressing measurement and dynamics of the middle class. Yet most writing on the subject lacks clarity on the definition of what it means to be ‘middle class’. The conceptual roots of class can be found in the works of Karl Marx and Max Weber. The Marxian approach defined class in terms of common structural positions within the organization of production, where class stratification is based on the concept of exploitation and property relations (Wright 1979). The Weberian view, on the other hand, conceives class as individuals with common economic ‘life chances’ which determine their opportunities for income in the market, and identified the middle class as those owning skills and education. This approach has triggered an important interest in analyzing the link between class and economic vulnerability. In the sociological literature there is a well established tradition of class dynamics analysis based mainly on occupational structure following Goldthorpe’s (1987) categories.

In the economic literature, the analysis has focused mainly on relative definitions, addressing a stratum of the income distribution rather than an analysis of class. Existing relative definitions compare different middle classes from place to place because income distributions differ across countries. An absolute approach becomes more advantageous because it identifies middle class as those households with income or consumption in a specific and comparable range. For instance, Banerjee and Duflo (2008) and Ravallion (2010) have suggested the use of absolute income thresholds to define lower, middle, and upper classes. However, while these absolute measures enable comparison across countries their definitions have resulted in descriptive statistics of income groups because the thresholds are defined arbitrarily.

Both sociological and economic literature would suggest that being middle class is much more than just ‘not being poor’. For example, in a recent study, Goldthorpe and McKnight (2004) show that class positions affect the risk and opportunities individuals face. Their analysis focuses on three classes of workers and their contracts (non-skilled workers with simple contracts, professional workers and managers with comprehensive and stable contracts, and intermediate workers with ‘mixed’ forms of contracts), as well as on three dimensions: economic security, economic stability and economic prospects. The main results from the empirical work show that, in terms of economic security, the type of the contracts held by non-skilled workers has a direct impact on the high risks of unemployment and job loss these workers face, relative to other classes. In this sense the ‘commodifying’ of labor and associated higher probability of unemployment and less security in terms of health and pensions, makes class a central element of economic vulnerability.

A vulnerability approach to the definition of middle class

Thus, in line with Amartya Sen’s idea that poverty is absolute in the realm of capabilities but relative in the realm of income, we propose a framework in which middle class is absolute in terms of the functionings that define it but relative in terms of the means through which those functionings can be achieved (Lopez-Calva and Ortiz-Juarez 2011; Ferreira et al. 2012). We argue that vulnerability to poverty is the absolute functioning that defines the middle class. We set the lower threshold of the middle class at an absolute level: a ten per cent probability, or lower, of falling into poverty, given that 10 per cent of people falling into poverty has been the average in Latin American countries over fifteen years. Using a regression-based approach we exploit panel data to determine the amount of comparable income associated with that probability level—using income as the dimension onto which vulnerability to poverty is mapped. Based on our findings from applying this methodology to three countries, and validating the method using self-reported class status from other surveys (Ecosocial), we set an absolute lower bound for the middle class of US$10 PPP.

This creates an absolute lower threshold that can be used to measure the middle class across countries over time. Ferreira et al (2012), following this approach, find that in 2009, for the first time in history, one in three individuals in Latin America and the Caribbean were middle class. This achievement notwithstanding, being middle class in Latin America is still, in relative terms, a privileged status. Figure 1 shows the distribution of income in 2009 for 15 out of 41 countries (including overseas territories) in Latin America and the Caribbean, representing 86 per cent of the region’s population.

Figure 1: Distribution of income in Latin America and the Caribbean (2009)

Figure 1: Distribution of income in Latin America and the Caribbean (2009)

Note: Countries include Argentina, Bolivia (2008), Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico (2010), Panama, Paraguay, Peru, Uruguay.

Source: Ferreira, F., Messina, J., Rigolini, J., Lopez-Calva, L.F., Lugo, M. and Vakis, R. (2012). World Bank Report.

Figure 1 shows that the region’s income distribution is grouped around both the poverty and middle class lines (US$4 and US$10 a day). This is, in part, the reason why we are observing dramatic decreases of poverty and increases of the middle class. Any small shift in the mean of the income distribution that brings people out of poverty and into the middle class affects a large segment of Latin America’s population. Such a large aggregate effect would not be seen for a shift from the middle class to, say, the upper threshold of US$50 a day.

In fact, about two-thirds of the region’s population remains concentrated in the poor and vulnerable classes. This suggests that, despite positive trends, the region is not yet a ‘middle class society,’ where most people earn a sufficiently high income to enjoy the sort of security that we often associate with middle class citizens.

Using this well-defined concept of middle class on the basis of vulnerability to poverty, we can conclude that thanks to sustained economic growth and improved social programsmes, a third of the population in Latin America can be counted among the stable middle class. But many of those who have left poverty are at risk of falling back into it. While Latin America is in the process of becoming a middle class society, the transformation is not yet complete. Its consolidation will require effective public action in the years to come.

Luis F. Lopez-Calva, Poverty, Equity and Gender Unit, Latin America and the Caribbean Poverty Reduction and Economic Management, The World Bank. Visiting Scholar at UNU-WIDER in 2012.

Further reading

WIDER WORKING PAPER 2012/098: ‘Stability and Vulnerability of the Latin American Middle Class’.

 

[1] This article draws from the World Bank report ‘Economic Mobility and the Rise of the Latin American Middle Class,’ by Francisco Ferreira, Julian Messina, Jamele Rigolini, Luis-Felipe Lopez-Calva, Mariana Lugo, and Reno Vakis (2012), as well from the World Bank Policy Research Working Paper No. 5902, ‘A Vulnerability Approach to the Definition of the Middle Class,’ by Luis-Felipe Lopez-Calva and Eduardo Ortiz Juarez (2011).

 

WIDERAngle newsletter
January 2013
ISSN 1238-9544

http://creativecommons.org/
http://creativecommons.org/
Previous
Youth Employment
Youth Employment
Next
Truly one of a kind – SA-TIED’s Research Assistant programme
Most jobs right out of university are either filled with busy work or too much work—very little time is available for gaining new skills...
Truly one of a kind – SA-TIED’s Research Assistant programme