Historic Setback
Millions of people Tumble Out of the Global Middle Class in a historic setback.
For the first time since the 1990s, the global middle class shrank last year, according to a recent Pew Research Center estimate. About 150 million people—a number equal to the populations of the U.K. and Germany combined—tumbled down the socioeconomic ladder in 2020, with South Asia and sub-Saharan Africa seeing the biggest declines.
The divergences are stark. India will end 2021 with a gross domestic product that’s 5.2% smaller than it would have been otherwise, according to forecasts by Bloomberg Economics. Indonesia’s output will be 9.2% smaller than its pre-crisis trend foretold. The U.S.? Just 1.6% smaller.
As in other countries, India’s poorest have borne the largest share of the economic pain from the coronavirus crisis, Fernandes says. But the downturn has also wiped out scores of white-collar jobs such as engineers and teachers. About 21 million salaried workers lost their jobs between April and August of last year, according to the report.
The upshot is that India’s middle class shrank by 32 million people in 2020, accounting for 60% of the worldwide drop in the number of people earning $10-$20 a day, according to Pew Research Center estimates. The reversal looks like the largest India has seen since it began liberalizing its economy in 1991.
Pandemic-Related Decline
Pew Reports The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply
A new Pew Research Center analysis finds that the global middle class encompassed 54 million fewer people in 2020 than the number projected prior to the onset of the pandemic. Meanwhile, the number of poor is estimated to have been 131 million higher because of the recession.
As defined in this report (and in previous Pew Research Center analyses), people who are middle income live on $10.01-$20 a day, which translates to an annual income of about $14,600 to $29,200 for a family of four. This is modest by the standards of advanced economies. In fact, it straddles the official poverty line in the United States – about $23,000 for a family of four in 2020 (expressed in 2011 prices). By global standards, the poor live on $2 or less a day, or no more than $2,920 annually for a family of four.
The number of people in the global high-income tier (more than $50 daily) is estimated to have decreased by 62 million in 2020, erasing about half of the gain since 2011, with most of the change emanating from advanced economies. Meanwhile, the upper-middle income population ($20.01-$50 daily) fell by 36 million, while the low-income population ($2.01-$10 daily) is estimated to have increased by 21 million.
Mish
In the U.S. the decline of Middle-Class income will soon be felt as Pres. Biden revives Obama 3.0 Economic Policies which is to return to forced globalism and diminished U.S. middle-class prosperity…. the often mentioned “service driven economy.”
this is the end result of …Globalization. the globalization that US and other corps moved production facilities to China. then, the Chinese grew affluent and then went into former wild areas of China to hunt for game meat. that game meat brought the animals to the Wuhan wet market where the bat virus mutated into…Covid 19. As the late-commentator used to say , …”that is the rest of the story.”
A widespread middle class is a post-WW2 invention, where worker wages and benefits could far exceed actual need and allow for all of the nice houses, cars, boats, vacations, etc. The excess income also served to inject money into the lower income groups via service jobs, jobs abandoned by the middle class, and even via the route of tax-payer funded welfare.
And, although many people here don’t want to hear it, it was through the work of unions and union organizing.
There is no natural right of or internal stability to a middle class. The middle class depends on the ability to demand or even extort business to pay you enough for all of the extras you want in life.
In a world with ease of relocation, ease of shipment, internet, automation and AI–a middle class becomes difficult.
And a persistant learned anti-union bias guarantees a faster downward trend.
The middle class became widespread as a result of:
Since globalism became the reigning ideology, unions have had to bargain for LOWER wages/benefits just to keep jobs in the country.
And now unions have sold out by supporting mass immigration. The union leaders used to be against mass immigration, but not anymore.
Soon, only the rich and poverty class!
Question – if global corporate taxes are set to a common level, won’t corporations just move to where they can more easily drive down salaries? In other words, Gov gets more tax income but it comes out of workers wages?
This will squeeze people even more & middle class.
Alternatively, prices rise to compensate with reduced annual salary increases, squeezing consumption.
I doubt Yellen et al have thought this through very well.
No free lunch.
And also, you have to get into account that tax revenue could drop, if there are fewer middle class jobs.
And also, many MNCs are able to avoid taxes altogether by going overseas, as they can claim their profits were realized by a foreign subsidiary and thus benefit from tax deferral.
They should set the corporate tax rate to 0. This would help to keep jobs in America. Also, it would eliminate the games that big biz can play with the tax laws, which gives big biz an advantage over small biz, which doesn’t have the lawyers or the lobbyists.
they should just redefine what it means to be middle class so that the stats look better.
The term “middle class” is a euphemism meant to obscure the truth. The “middle class” is just a shrinking working class. If you have to work to survive, regardless of income or occupation, then you are working class. The overwhelming majority of taxes are paid by the working class, as taxes ultimately fall on consumers. Professional workers have the best chance of upward class mobility.
The next class up is investor class where your money works for you. Up from there is leisure class where your capital is so secure you can’t lose.
Downward would be welfare dependent, then indigent/homeless.
Based on this article, it appears India has a problem on its hands, namely 32 million more welfare dependents.
India doesn’t do welfare the same as the OECD countries.
“welfare dependents” = destitute, in India
Sad to read that India treats its citizens so poorly.
What’s unique about Asia? Less safety nets? More middle class on the cusp of poverty?
The real joke of globalization is on the middle class in general in emerging markets, especially in smaller cities. Globalization has accelerated profits to shareholders but not really passed on lower prices to consumers. This is slowly changing now in some industries with more companies realizing they have to compete with companies with no public shareholders or need for increasing profits. Covid-19 has forced the issue with higher margin public companies needing to reduce their profits in order to stay in business. Once Covid started, I noticed despite getting the same amount of clothing for family, I was paying about 50% less in prices at the same places online that I use to shop before Covid.
If one has an education or skill in India the incentives are to emigrate to America, Canada or Western Europe. The pay in India is horrible
The pay in Bangalore for an experienced professional is as high as a the midwest in the United States. Several people in the company I am at make 100k or greater working in senior technical or managerial roles there. There is no health care burden on employers in India so companies can pass on the savings as salary to people they deem worth it.
That’s too wide a net. I’m talking more about engineering and not software or IT. And at higher levels.
The jobs and occupations that enable one to achieve middle class have drastically changed over the last several decades. Opening up a hardware store, pharmacy, stationery are out. Teaching salaries don’t keep pace. Today one must be a programmer, engineer, lawyer or CPA. I’m surprised it hasn’t happened sooner.
In China the economic policies to ensure the middle class has wealth are missing.
Actually teaching salaries, at least in North America most definitely keep one in the middle class. The pensions alone make them millionaires if not multi-millionaires. I’m sure that sounds insane but my mom retired in 94 (mid 50’s) and her pension is a very modest (by todays standards) 35K a year. But over 27 years that’s added up to 950K with no end in sight. That’s excluding her medical benefits. Her principal who retired around the same time gets 80K so he’s gotten over 3 million!
Shop owners (store, pharmacy) also make middle class money if they don’t go broke. They get plenty of write offs.
So most U.S. government workers such as Teachers are effectively millionaires because of their pension and healthcare benefits, even though their salary puts them squarely in the “middle class” income bracket. Clearly we have a definition problem.
The biggest thing that has forced people do this is the income trap for housing. In most places now you need two incomes to now have the same standard of living that use to take only a single income. Housing prices have skyrocketed not just on the coasts but also everywhere globally. The biggest culprit of this is loans and financing system that are allowed to exist for housing and cars that dont exist for other industries. It is a pipe dream but the fastest way to lower commodity prices and a better standard of living would be to remove the ability to take out a loan for a house (basically has to be paid in full with cash or credit card) and also ban derivatives in commodities and derivatives trading in general.
not just home prices, health care is a huge one
Removing the ability to take out a loan would probably push 95% of people into being renters forever unless you were lucky enough to inherit your home from your parents.
Average home size from the 50’s and 60’s has doubled or more in square feet so that adds a lot to cost. Also materials are a lot more costly now due to resources being much more scarce now than 40+ years ago since population has doubled so there is essentially half as much for everyone.
So home prices would not suddenly drop by 50 or 80 percent if this was implemented. Instead there would be very little new homes built since you’d have to be a cash buyer so only big investment firms could buy to rent them out.
Derivatives are the greatest wealth-generating mechanism ever developed, but you need training and access to benefit. The reason you think you need 2 incomes is because inflation, or rather, dollar devaluation by the Federal Reserve, has been sanctioned by Congress since 1913. This was put into overdrive when the dollar was decoupled from gold in 1971. That’s how expensive government programs, from which we all benefit, are paid for. Your mission in life — should you choose to accept it — is to develop a system of wealth generation to counteracts inflation. Most folks have been trying to do this through income, by having 2 incomes, and then trying to save their way to prosperity. However this will only guarantee they will slowly slide into poverty.
“Your mission in life — should you choose to accept it — is to develop a system of wealth generation to counteract inflation.”
So….in all these banal comments, occasionally I read a true hidden gem……which is why I read a forum like this.
(a round of applause for your comment)
I spend a lot of time explaining how this works, and almost nobody has the brains or insight to understand. It’s sort of like that YouTube video where people are offered a candy bar or a bar of silver…and almost everyone chooses the candy.
I think that housing is very location-dependent. Here in the US Midwest, for example, one can still purchase a home in a small town or rural area for a reasonable sum. Of course, one may not have all the conveniences (or problems) of a metropolitan area; there are always trade-offs.
OMG – If I only made $23k I would starve :-0