The middle class and the development process

Abstract

Stable, higher income democracies often have both a strong middle class and relatively low levels of inequality. In contrast, lower and middle income countries with highly unequal patterns of income distribution and stratified social structures often have a weak middle class, more social conflict and a tendency to populist and/or authoritarian politics. This paper investigates, for a sample of more than 120 countries, some empirical correlations between the size of the middle class and the following set of variables: the level (mean); of per capita income and wealth, the degree of inequality (Gini coefficients); of per capita income and wealth, the level and composition of public expenditure, the share of small and medium size enterprises in employment and output and an indicator of democracy. Our results show that in high income economies the relative size of the middle class (using a broad definition of deciles 3 to 9); is near 6 percentage points higher than the share of the middle class in low income countries, suggesting a positive relationship between the level of economic development measured by per capita income levels and the share of the middle class. However, the relationship between the share in income of the middle class and the level of per capital income is non-linear and shows more dispersion for low and middle income countries with per capita income below US$ 10,000 than for rich economies. We found weak correlations between the share of the middle class and the level of public spending and the relative size of the small and medium size enterprises (measured both as shares of total employment and total output);. When we correlate an index of democracy and the middle class shares we find little or no correlation between both variables except for the group of high-income economies.