Rethinking the measurement of the middle class: Evidence from Arab - - PowerPoint PPT Presentation

Rethinking the measurement of the middle class: Evidence from Arab countries

Khalid Abu-Ismail Niranjan Sarangi

UNU-WIDER Conference on ‘Inequality – measurement, trends, impacts, and policies’ 5-6 September 2014, Helsinki

Why study the middle class?

• Instability of economies and societies such as in

the Arab countries are better understood by closely examining the middle class.

• With right policies in place, the middle class can

be a potential force for change towards the process of socio-economic-political transformation.

Who are the middle class?

How to define and measure the middle class?

• Absolute measures:

– Individuals with daily per capita income or expenditures between $2-$20 per day (Asian Development Bank 2010) or $10-$100 per day (UNDP 2013) or between $2

• $4 or between $6-10 (Banerjee and Duflo 2008) or

between $2-$13 (Ravallion 2009).

• Relative measures:

– People between second, third, and fourth quintiles of income distribution (Easterly 2001), or individuals earning between 75-125 per cent of median per capita income (Birdsall et al 2000).

• Combination of both absolute and relative definitions:

– People who consume the equivalent of $10 or more per day, but who fall below the 90th percentile in the income distribution (Birdsall 2007).

The definitions and measures vary across regions

Existing definitions yield wide range of estimates of the middle class size: For instance, it ranges between 1 - 77 per cent in case of Arab countries

76.6 69.0 85.4 77.1 33.0 30.8 28.5 30.2 44.6 38.1 6.0 8.0 4.2 6.9 29.0 20.8 0.6 1.5 4.9 8.5 39.0 31.0 0.8 2.2 74.8 65.9 70.2 65.9 32.7 30.0 1.0 3.2 30.7 23.6 0.0 0.8 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 Arab Countries East Asia & Pacific Eastern Europe and CIS Latin America & Caribbean South Asia Sub-Saharan Africa ADB AfDB Lower MC AfDB Upper MC Ferreira Ravallion Birdsall Source: Authors

Estimates of global middle class

Based on a measure that defines middle class as people earning or spending $10–$100 a day, in 2005 PPP terms

• Arab region has105 million people
• ut of the 1.9 billion global middle

class population.

• What does this imply for the Arab

region?

• Average per capita of most

countries in the region is much lower than the lower cut off of $10 per day,

• which results in underestimating

the middle class in the region, and in other developing regions as well.

35.99% (664 million) 28.46% (525 million) 18.32% 9.81% 5.69% (105 million) 1.73%

Europe Asia-Pacific North-America Central and South America Middle East and North Africa Sub-Saharan Africa Source: Human Development Report 2013

Common problems associated with these methods

• Arbitrariness in deciding the thresholds (whether absolute or relative

thresholds) in any consumption/income distribution

• Overlooks consideration of country-level or regional specificity in

consumption pattern or any qualitative attribute that distinct class structure in a consumption/income distribution

• A fixed line (any absolute threshold) undermines disparity across as well as

within countries and may not be applied to compare welfare or classes

• Inherent biases of using purchasing power parity (PPP) in deciding the

thresholds for the purpose of international comparison – similar as fixing a global poverty line of $1.25 PPP

• Economies with different levels of per capita income, expenditure patterns,

life style, makes it difficult to find a unique definition of the middle class applicable to all countries.

An alternate approach to measuring the middle class

• Conceptual questions

– The degree of choice that households in each society have over how they spend their budget is a critical factor in deciding their social class. For example, the consumption basket that provides calorie requirements for daily consumption is used to set poverty line in a specific society. Can this normative approach be extended to define the middle class threshold in each society? – Class is also associated with sociological aspects and it goes beyond just an economic construct in any society. What are the elements that best proxy social status -- education, occupation, wealth or any other characteristics?

• We translated these concepts to an empirical exercise in

defining the middle class using information from household survey expenditure of Egypt and other Arab countries, taking into account country specific assessments. We also stayed away from the controversy of using $PPP.

Economic definition

• The economic perspective assigns the middle

class status to the group of individuals whose level of consumption expenditure lies above an appropriately defined upper poverty line but whose level of expenditure on non-essential non- food items is less than the value of a lower poverty line.

Economic definition

Sociological definition

• Closer to the sociological perspective, the middle

class are those who are employed within the formal private or public sectors within one of the ‘white collar’ occupational categories and who possess secondary or higher education degree. We call them “professionals”.

Results

Middle class (by economic definition) are the largest population group in most Arab societies

34.5% 34.8% 25.2% 5.5% 12.3% 2.5% 8.0% 4.6% 1.4% 12.0% 25.0% 23.7% 17.4% 21.3% 11.9% 20.6% 10.9% 9.6% 43.4% 31.6% 44.0% 60.9% 56.5% 55.0% 56.2% 57.5% 29.8% 10.1% 8.7% 7.1% 16.3% 9.9% 30.7% 15.3% 27.1% 59.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2006 2011 2007 2007 2010 2005 2010 2010 Sudan Yemen Egypt Iraq Syria Jordan Lebanon Tunisia Oman LDCs MICs UMICs HICs Poor Vulnerable Middle Class Affluent

Middle class size in the Arab world remained almost unchanged from 2000-2011 but pattern changes after that

18.3% 29.6% 21.8% 21.2% 23.3% 21.8% 47.3% 36.7% 45.1% 13.3% 10.3% 11.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2011 (with impact of crises)* 2011 (without impact of crises) Affluent Middle class Vulnerable Poor

The middle class are more capable now than in 2000

• 2.1%
• 3.5%
• 3.6%
• 4.0%
• 0.2%
• 4.2%

11.9% 16.4% 3.9% 1.4% 1.0% 3.0% 10.0% 2.9% 2.5% 1.4%

• 3.1%

147.8% 10.9%

• 0.7%

1.3%

• 2.6%

40.0% 16.4% 0.6% 1.5% 11.8% 14.8%

• 50.0%

0.0% 50.0% 100.0% 150.0% 200.0% Yemen Egypt Syria Jordan Tunisia Oman

Annual average percentage change in share of middle class across educational levels

Tertiary and above Above secondary and below University degree Secondary Basic No formal education

• 6.3%
• 1.9%
• 2.4%

4.9%

• 7.2%
• 1.9%
• 7.5%

0.8%

• 7.6%
• 2.9%
• 4.5%
• 1.4%
• 8.6%
• 4.6%
• 4.5%

6.3%

• 7.1%
• 1.5%
• 4.3%
• 0.3%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% Yemen Egypt Jordan Tunisia

Annual average percentage change in incidence of deprivation to standard of living

Total Affluent Middle class Vulnerable Poor

The middle class moved away from agriculture to services, less to industry, but most of the services are in the low-value added sectors

• 2.2%
• 1.8%
• 2.3%
• 1.0%
• 1.6%

1.7% 0.8%

• 2.1%
• 6.2%
• 1.4%
• 9.8%
• 5.8%
• 6.0%
• 1.1%
• 5.8%
• 8.1%
• 11.3%
• 12.5%
• 11.6%
• 12.2%

2.8% 1.8% 1.5% 1.2% 1.4%

• 1.3%
• 1.7%
• 2.2%
• 2.2%
• 1.9%

12.6%

• 4.3%
• 3.3%
• 3.6%
• 3.4%
• 2.7%

4.0% 8.2% 10.9% 8.8% 2.8% 1.6% 1.2% 0.0% 1.0%

• 0.5%

0.2% 1.5% 2.6% 1.1% 2.5% 2.4% 1.1% 0.7% 1.1% 22.9% 28.2% 19.7% 3.8% 13.9%

• 15.0% -10.0% -5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Poor Vulnerable Middle class Affluent Total Poor Vulnerable Middle class Affluent Total Poor Vulnerable Middle class Affluent Total Poor Vulnerable Middle class Affluent Total Egypt Syria Jordan Tunisia Services Industry Agriculture

Percentage change in the middle class population by economic sectors, years closest to 2000-2011

Growing labor market informalization, affecting middle class youth (as well as women)

Occupation of youth in the middle class households

33.1% 36.8% 25.4% 16.1% 25.6% 19.2% 53.4% 16.5% 3.0% 1.1% 3.6% 4.2% 14.4% 17.5% 9.0% 20.5% 16.1% 15.2% 30.4% 18.3% 12.8% 17.3% 9.6% 9.0% 11.5% 16.6% 18.3% 19.3% 0.1% 2.2% 5.2% 6.7% 9.0% 7.7% 15.7% 7.0% 19.6% 14.5% 17.4% 10.2% 18.3% 24.4% 15.0% 21.8% 41.5% 19.5% 35.5% 28.3% 17.2% 22.6% 19.4% 30.7% 41.2% 58.2% 42.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2000 2011 2007 1997 2007 2005 2010 2002 2010 2005 Sudan Egypt Iraq Syria Tunisia Jordan Lebanon LDC MIC UMIC Other Services Transport Trade Construction Industry Agriculture

Professionals remain a significant minority

The share of professionals in population aged 15 and above

7.6% 5.8% 12.6% 9.1% 8.8% 9.2% 9.9% 8.3% 15.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2009 2006 2011 2007 2007 2010 2005 2010 2010 Sudan Yemen Egypt Iraq Syria Jordan Lebanon Tunisia Oman LDCs MICs UMICs HICs

Distribution of professionals across economic sectors, increasing share of ‘other services’

5.2% 9.7% 13.4% 6.9% 5.3% 4.0% 9.0% 9.2% 7.8% 13.0% 21.7% 71.2% 63.7% 79.0% 61.0% 75.9% 75.1% 69.9% 73.2% 68.1% 25.7% 30.4% 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 2009 2000 2011 2007 1997 2007 2002 2010 2005 2005 2010 Sudan Egypt Iraq Syria Jordan Lebanon Tunisia Agriculture Industry Construction Trade Transport Other Services

The share of professionals increased among the poor and the vulnerable in most countries, years closed to 2000-2011

2.6% 21.8%

• 0.2%
• 8.5%

4.6% 45.2% 2.5% 13.4% 1.2% 2.9% 20.7% 18.7% 8.6% 7.3% 2.2%

• 0.8%

7.5% 73.3% 17.4% 2.8% 4.7%

• 1.3%
• 0.5%

4.2%

• 20.0%
• 10.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Yemen Egypt Syria Jordan Tunisia Oman Affluent Middle class Vulnerable Poor

Stable or slight decline in inequality between economic classes, years closest to 2000-2011

Ratio between mean per capita expenditure of affluent and respective population classes

4.7 6.5 7.0 6.2 7.1 6.8 7.7 6.9 5.5 5.0 10.5 9.9 2.0 2.7 2.9 2.8 2.6 2.7 2.5 2.5 2.4 2.1 3.0 2.6

• 1.0

1.0 3.0 5.0 7.0 9.0 11.0 1998 2006 2000 2011 1997 2007 2002 2010 2000 2010 2005 2010 Yemen Egypt Syria Jordan Oman Tunisia Affluent/ Poor Affluent/ vulnerable Affluent/ Middle class

Ratio between national per capita household final expenditure and survey based per capita household consumption expenditure

0.74 1.14 1.96 2.62 1.00 1.14 1.16 1.39 1.82 2.22 1.42 1.45 0.00 0.50 1.00 1.50 2.00 2.50 3.00 1998 2006 2000 2011 1997 2007 2002 2010 2000 2010 2005 2010 Yemen Egypt Syria Jordan Oman Tunisia

Increasing inequality between the top and the rest, years closest to 2000-2011

Ratio between per capita expenditure from national household final expenditure and survey based household expenditure per capita

3.4 7.4 13.7 16.2 7.1 7.7 8.9 9.6 10.1 11.0 14.9 14.3 2.1 4.5 9.2 11.3 4.6 5.0 5.8 6.1 6.1 7.3 9.0 8.0 1.5 3.0 5.7 7.4 2.6 3.1 2.9 3.4 4.3 4.7 4.3 3.8 0.7 1.1 2.0 2.6 1.0 1.1 1.2 1.4 1.8 2.2 1.4 1.4

• 1.0

1.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0 17.0 1998 2006 2000 2011 1997 2007 2002 2010 2000 2010 2005 2010 Yemen Egypt Syria Jordan Oman Tunisia Rich pfce/ Poor pce Rich pfce/ vulnerable pce Rich pfce/ Middle class pce Rich pfce /Affluent pce

Conclusion

• The results based on the new approach to measure the Arab middle class are

interesting.

• From 2000 to 2011, the middle class share among the Arab population remained

largely stable, but declines sharply by taking into account the negative impact of crises in the region.

• The share of professionals remained a minority though their size increased

moderately during 2000-2011.

• There has been a shift from agriculture to service sector jobs for the middle class

but they are highly concentrated in the “other services” category, even among professionals, which tend to be low value-added or informal in nature.

• The evidence on increase in the share of professionals among the poor and the

vulnerable indicates pauperization of the professionals.

• Economic growth has not proportionately benefited the poor and middle classes

in some countries, such as Egypt.

• Increase in inequality between the top bracket of population and the other

population classes during 2000 and 2011 shows the signs of non-inclusive growth processes in the Arab societies.

Thank you!