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Life in the middle (2): Poor but rising

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8 June 2012 10:32

In my previous post I outlined some of the angst in the developed world regarding the future of the middle class. There is, however, another compelling story to tell about life in the middle, and it's much more upbeat. The same period that has seen the middle squeezed in the developed world has witnessed a dramatic expansion in the global middle class, driven by economic progress in emerging economies.

Of course, this second story is heavily coloured by the chosen definition of 'middle class', and there are plenty of choices on offer. One approach is to adopt a relative definition and classify the middle class as comprising those with incomes between 75% and 125% of the median income in each country. Alternatively, other researchers have used absolute definitions, such as those living between the mean incomes of Brazil and Italy, or those living on between $2 and $10 per day.

Martin Ravallion of the World Bank has defined the developing world's middle class as those who live in a household with consumption per capita between PPP$2 and PPP$13 a day (at 2005 prices). This captures those who are no longer poor by developing country standards but are still poor by rich country standards.

Using this measure, in 1990 about one person in the three in the developing world was middle class. By 2005, that proportion had risen to one in two, after an extra 1.2 billion people had joined the developing country middle class. China alone accounted for half of these new entrants. Using a definition more in keeping with rich world standards, however, Ravallion estimates that barely 80 million people from the developing world entered the Western middle class over the same period.

A new approach to this measurement challenge proposes using car ownership as a proxy estimate of the number of middle class households. On this basis, the global middle class has again grown rapidly, with nearly all of that growth coming from the developing world. So, for example, the growth of cars in circulation between 2006 and 2010 was more than 35% in China and more than 15% in India.

In marked contrast to some of the pessimism about the future of the middle class in the developed world, most forecasts regarding the global middle class tend to be quite optimistic. One of the most cited forecasts is this OECD paper by Homi Kharas. Kharas defines the global middle class as those with consumption between US$10 and US$100 per day and on this measure estimates that in 2009 the global middle class comprised more than 1.8 billion people, with 18% found in North America, 36% in Europe and 28% in the Asia Pacific. By 2030, Kharas reckons that his definition of the global middle class could have expanded to more than 4.9 billion people, with 85% of this growth coming from the Asia Pacific (forecast to account for an impressive 66% of the total global middle class that year), and in particular from China and India.

This then, is a much more positive take on life in the middle, as opposed to the more pessimistic view prevailing in large parts of the developed world. In my last post in this series, I'll look at the links between the two stories.

Photo by Flickr user Scalino.

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