Global middle class shrinking as wages stagnate

The global middle class is shrinking as a combination of wage stagnation, rising living costs and job insecurity hit prosperity in the world’s leading economies, in turn fuelling political instability.

A report from the Organisation for Economic Co-operation and Development (OECD) said that the middle class – defined as households with income between 75% and 200% of the national medium – had shrunk with each generation since the 1960s.

It claims 68% of the post-war baby boomer generation belonged to the middle class, compared to just 60% of their millennial children.

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Across the OECD’s 36 developed countries, the proportion of people living in households in the middle-income group fell from 64% in 1981 to 61% today, with the number in Britain dropping even further to 58%.

Over the last three decades the proportion of the US population classified as middle-income has fallen by about five percentage points to 51%, one of the lowest in the OECD.

CNN Business says “the middle class has been under stress for years, helping fuel the rise of progressive Democrats in the United States, who are seeking to increase taxes on the rich to provide a stronger safety net — including universal health care”.

According to The Times, the decline of the middle class is down “in part to stagnating earnings, with median incomes rising a third less than incomes of those in the richest 10% over the past 30 years”. Households are also spending more on education and healthcare than previous generations which is eating into family expenditure.

“Middle incomes are barely higher today than they were a decade ago” says the Financial Times, “and, as these have stagnated, the traditional middle-class lifestyle has become too expensive for many”.

More than one in five middle-income households spend more than they earn.

At the same time, workers have faced growing job insecurity, made even worse by the rise of automation, which the OECD said now threatens one in six middle-class jobs.

These factors have contributed to an overall decline in prosperity across the western world, which could have severe societal and political consequences, the report warns.

Angel Gurria, OECD secretary-general, said: “Today the middle class looks increasingly like a boat in rocky waters. Governments must listen to people’s concerns and protect and promote middle-class living standards”.

The OECD highlighted the growth in populist movements in democracies across the developed world as evidence that traditionally moderate middle-class families were feeling “left behind” and increasingly turning to anti-establishment movements to express their anger.

To counter these concerns, the OECD has put forward a series of measures including lowering taxes on the middle class and increasing them on the wealthy, developing more affordable housing, helping young adults build wealth, containing the cost of education, child care and health and improving workers’ skills and training – all aimed and softening the middle class squeeze.