The Middle Class Shrinks Globally For the First Time in Nearly Three Decades

Mish

An estimated 150 million people slipped down the economic ladder in 2020, the first pullback in almost three decades.

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

Comments (34)
No. 1-12
MacPacAttack
MacPacAttack

OMG - If I only made $23k I would starve :-0

Sechel
Sechel

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.

Sechel
Sechel

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

Casual_Observer
Casual_Observer

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.

Sechel
Sechel

What's unique about Asia? Less safety nets? More middle class on the cusp of poverty?

truthseeker
truthseeker

Hey Mish I had something important to say here but in the middle of the Saturday night cocktail hour decided to wait. Anyway I don’t know if you and your wife ever have time to watch any of the very many series there are to choose from on Netflix or Amazon as hard as you work. Other than the Game of Thrones my all time favorite, one of Lynn’s favorite was Blacklist a really great entertaining series. The one I really liked second most was Justified. It takes about a week or two to warm up to the most important characters, yet for me was very entertaining as was Hell on Wheels and Longmire Lynn and I both really liked. Apologize for being so personal and out of line here Mish. Obviously I won’t try to post this as it’s just for the two of you.

Mr. Purple
Mr. Purple

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.

anoop
anoop

they should just redefine what it means to be middle class so that the stats look better.

caradoc-again
caradoc-again

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.

4 Replies

jfs
jfs

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.

Quanta
Quanta

If you set corporate tax rate to 0, then Wells Fargo, JPM, Blackrock etc... will purchase all the land, all the assets, all the houses, such that us, poor serfs / plebes, have nowhere to live. Oh wait, this is already happening even with non-zero tax rate.

jfs
jfs

I think there should still be property tax, but just not the income tax. The property tax should be based on location and amount of land, not on the value of things built on the land. You should not be disincentivized to improve your property.

Quanta
Quanta

Unfortunately there is no size fits all. If you tax land primarily, farmers will get unfairly taxed compared to Sultan's golden castle built on the same amount of land.

njbr
njbr

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.

oee
oee

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."


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