Association for Public Policy Analysis & Management

Many studies have examined the recent middle class squeeze in the U.S. – that there is both a shrinking middle class and their incomes are not rising.  And this shrinking of the middle class is occurring in many developed countries.  While in some countries the fall in the middle class is accompanied with an increase in poverty, in many countries this fall in the middle class is due to households moving up the income distribution.  These changes in the size and composition of the middle class also change with the recessionary periods, with the economic well-being of both the bottom and middle falling behind those at the top. 

We use the Luxembourg Income Study Database to evaluate the OECD member countries (about 28 countries) for the past 3 decades (from 1980-2010).  This time period spans the Great Recession, and will allow us to measure the change in the size and composition of the middle class.  We use a simple definition of the middle class – between half and twice each country’s median disposable household income (adjusted by household size).  For those OECD countries that are not included in the LIS data, we attempt to impute distributions using the summary statistics in the OECD Income Distribution database and the Eurostat SILC database.  We adjust each country’s income by purchasing power parities and pool all country data for similar years to create a large LIS/OECD database that provides a sample of 19 OECD countries.  This is similar to the comparisons made in the U.S., which compare the distribution of the states to the overall distribution for the U.S. 

Using this database, we can determine the OECD-wide income distribution, the median, and middle class.  We evaluate how the OECD middle class has changed over the past three decades and how each country’s middle class compares to the overall OECD middle class.  In particular, we find that changes in the size of the middle class depend on which measure one uses – country-specific or global middle class.  Using the global middle class shows smaller middle classes in countries.  The global middle class increases for the U.S., Czech Republic, Spain and Canada, while their country-specific middle class falls.  Over the Great Recession, some of the differences are larger – while global middle class falls for Norway, Canada and Luxembourg, they all experience increases in the upper class. We further evaluate the demographics of this changing middle class, and determining the age, family type, education and occupations of the global middle class and where they live.  As a strong middle class is important for economic growth, our evaluation of the composition and geographic distribution of the global middle class provides insight into how changes in the middle class affect economic growth.