Nicolas

Marié
What is the relevance, policy and measurement challenges associated with Middle
Classes (and Polarization)?
The phenomenon of the diminishing middle class or middle-class squeeze have been lately a
big concern by most countries and therefore it’s interest by the economic field has increased.

This phenomenon is mostly occurring when the society is polarized. This polarization concept
has to do with the analysis of income distribution, and it is now accepted that it is distinct from
inequality as, even if polarization involve inequality, it takes also other things into account.
When the society is polarized it is divided into groups and it is important to mention that there
are important intra group homogeneity and intergroup heterogeneity, for the example the
well-known high, middle and low class. It is a problem as, this groups, are prone to have
conflicts between them. If the middle class is almost inexistent and by hence there is a lot of
polarization, the income gap between the groups while by large and the social tension will
increase. This social tension can be measured by the loss of social welfare.

It is necessary to separate the two notions of the polarization. The first one talks about the
differences between the different groups (the alienation, as you reject the different one from
you) and the second one about the identification. The identification component talks about
the degree of closeness of the group, the closer the group, the more the probability that the
society will be prone to divisions and conflicts.

𝐵, the measure of social tension caused due to polarization in the society can be calculated by
the component of alienation and the Gini index, or similar by a component of Within groups
(identification) and a component of Between groups (Alienation). Knowing that the larger the
Alienation or the difference between group, larger the social tension. By hence, there is
polarization when groups of individuals characterized by within group homogeneity and
between group heterogeneity are observable.

𝐵 = 2(𝐴 − 𝐺) or B= 2 (GB – GW) 𝐴 = (𝑚2−𝑚1) / 2𝜇 (15)

There are 4 measures of middle class. In reference to the size of the middle class, the most
used one, classifies the middle class as those who are into the 25 th % person below the median
and 25th % above. Therefore, there is no consensus on the range to define the middle class.

If we consider the two components that we talked above (identification and alienation) and
the size of the middle class explained before, we see that in Brazil, both components have
increased between 1992 and 2001 but then have decreased sharply until 2012. Which shows
an improve on the social tensions. Therefore, the results showed that the income per capita of
the middle class was growing much faster than the mean income. The alienation movements
could predict changes in the population size, the middle class and the share of the income.

As I mention before, there is multiple ways to set the middle-class concept. For instance, one
possibility is to divide society in three equal groups of 33% each. Another way could be to set
the endogenously cut of points in a way in which it maximises the explanatory power of these
groups to explain income inequality. This cut of points explain more the income distribution
than the between groups component.
Even if several recent studies suggest that the distribution of income is becoming more
polarized, they can be criticized, as being range-specific depending on the cut-offs selected.

There is also the hypothesis of the middle class’s decline, studied by Foster and Wolfson.
Therefore, they did not consider measures of inequality adequate to analyse this phenomenon
according to some economists. These authors believed that this process of the growth of
extreme groups (rich and poor) has more to do with polarization rather than inequality.

In brazil, we talk about the “new middle class” as it is raising, this group can now acquire new
consumption and expenditure habits. During the crisis in Brazil, lot of people fall from the
middle class to the poor class, but as it happened also with the high class that went to the
middle class, the size didn’t change that much.

We my ask why it is that important the middle class. Thomas Malthus argued that it is
important as it drives transformation and innovation. He argued that the intellectual
improvement is mostly done by middle regions of the society. Dierdre McCloskey has also
argued that the rise of the middle class since 1600 gave a reason to ordinary people for
starting innovating. They believed that the upper class was not that efficient in innovation as
their incentives to innovate will result in a disrupt of their own rents (they are benefiting from
rents of the old industries). In the other hand the lower class didn’t have the opportunity in
most cases.

The literature points out also other reasons why the middle class is necessary for growth.
Between these ones we found out that, it promotes the development of human capital and
well-educated population, creates a stable source of demand for goods and services, supports
inclusive political and economic institutions. This last reason, having to do with creating better
governance is perhaps the most important way middle class boosts economic growth. It
promotes efficient government services and forward- looking public investments (education,
infrastructure) that benefits all the society rather than a special group. In the other hand, if the
middle class is weak, the government will tend to use their power and influence to secure
special favours and giveaway public resources.

In order to help this middle class do to its low income growth for some countries such as USA
(more slow that the first quintile and the highest), there are several politics that are being
proposed such as: A worker tax credit, founded by a carbon tax in the case of USA, a tax credit
for first-time home buyers, provide paid family leave with a payroll tax, child savings accounts
for college.

References:
Foster, James & Wolfson, Michael. (2010). Polarization and the Decline of the Middle Class in
Canada and the USA. Journal of Economic Inequality - J ECON INEQUAL. 8. 247-273.
10.1007/s10888-009-9122-7.

Thomas R. Malthus (1789). An Essay on the Principle of Population, London: J Johnson.

Deirdre McCloskey (2016).  Bourgeois Equality: How Idea, Not Capital or Institutions, Enriched the
World, University of Chicago Press.

 “The American Middle Class,  Income Inequality, and the  Strength of Our Economy: New Evidence
in Economics,”
The Middle Class Grows the Economy, Not the Rich David Madland- December 7, 201
Four policies to thelp middle class, and how to pay for them. Richard B Reeves and Katherine
Guyot.