Image of a tick box questionnaire asking "Are you in the middle class? Yes or no?"

Who is the middle class?

When we refer to the “middle class”, who exactly do we mean?

We can use different definitions:

  • Based on income distribution, the middle class refers to people who sit between the poorest 20% and the richest 20%. Similarly, one could define the middle class as the group of people whose income falls within a certain range relative to the income of the average person in the economy.

  • Financially, the middle class is said to begin when a family or individual has one third of their income left over for discretionary spending, after basic living costs have been covered.

  • From a wealth perspective, the middle class also includes people who may have limited income, but are debt-free and have savings and investments that allow them to live comfortably. Retirees, for example, may fall into this category.

Other factors might be relevant in determining who is in the middle class. For instance, location makes a difference. Earning $60,000 a year in rural Australia may position you in the middle class, but not necessarily so if you’re living in New York city.

The problem with all these definitions is that they fail to capture the important “aspirational” role the middle class plays in the process of our economic growth. You may not have realised, but what actually makes an individual part of the middle class, besides their income and wealth, are their aspirations!

So, what do we mean by ‘aspirations’?

A desire to own your own home, take family vacations, ensure a college education for your children and enjoy a healthy and financially secure retirement are all examples of middle class aspirations.

The Brazilian economist Eduardo Giannetti de Fonseca describes members of the middle class as

“people who are not resigned to a life of poverty, who are prepared to make sacrifices to create a better life for themselves but who have not started with life’s material problems solved because they have material assets to make their lives easy”1.

These aspirations, and ownership of the initial means necessary to achieve them, make the middle class the driving force of innovation.

Social harmony and the middle class

You now know the importance of having a healthy middle class from the perspective of economic growth and innovation. Did you also know the relative size of the middle class is also argued to be important for social harmony? The middle class is said to provide a buffer between the rich and poor, which tends to reduce social conflict.

Your task

What do you think? Add your comments about anything that surprised you or any additional insights you can provide.

In the next step, we will continue to look at why the health of the middle class drives change and economic growth.

Reference

  1. In Michael C. Howard (2011) Transnationalism and Society: An Introduction, McFarland Publisher, ISBN 0786464542, Chapter 5, page 132

Steven Pressman (2016) Why inequality is the most important economic challenge facing the next president. Retrieved from https://theconversation.com/why-inequality-is-the-most-important-economic-challenge-facing-the-next-president-66806


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This article is from the free online course:

Exploring Economics: Will the Next Generation Be Worse Off?

Griffith University