Governments need to do more to support middle-class households who are struggling to maintain their economic weight and lifestyles as their stagnating incomes fail to keep up with the rising costs of housing and education, according to a new OECD report.
Under Pressure: The Squeezed Middle Class says that the middle class has shrunk in most OECD countries as it has become more difficult for younger generations to make it to the middle class, defined as earning between 75% and 200% of the median national income. While almost 70% of baby boomers were part of middle-income households in their twenties, only 60% of millennials are today.
The economic influence of the middle class has also dropped sharply. Across the OECD area, except for a few countries, middle incomes are barely higher today than they were ten years ago, increasing by just 0.3% per year, a third less than the average income of the richest 10%.
“Today the middle class looks increasingly like a boat in rocky waters,” said OECD Secretary-General Angel Gurría, launching the report in New York with Luis Felipe Lopéz-Calva, Assistant Secretary General, Latin America and the Caribbean, United Nations Development Programme. “Governments must listen to people’s concerns and protect and promote middle class living standards. This will help drive economic inclusive and sustainable growth and create a more cohesive and stable social fabric.”
Gabriela Ramos, OECD Chief of Staff and Sherpa overseeing the Organisation’s work on Inclusive Growth, presented in more details the main findings of the report, saying “our analysis delivers a bleak picture and a call for action. The middle class is at the core of a cohesive, thriving society. We need to address their concerns regarding living costs, fairness and uncertainty.”
The cost of a middle class lifestyle has increased faster than inflation. Housing, for example, makes up the largest single spending item for middle-income households, at around one third of disposable income, up from a quarter in the 1990s. House prices have been growing three times faster than household median income over the last two decades.
More than one-in-five middle-income households spend more than they earn and over-indebtedness is higher for them than for both low-income and high-income households. In addition, labour market prospects have become increasingly uncertain: one in six middle-income workers are in jobs that are at high risk of automation, compared to one in five low-income and one in ten high-income workers.
To help the middle class, a comprehensive action plan is needed, according to the OECD. Governments should improve access to high-quality public services and ensure better social protection coverage. To tackle cost of living issues, policies should encourage the supply of affordable housing. Targeted grants, financial support for loans and tax relief for home buyers would help lower middle-income households. In countries with acute levels of housing-related debt, mortgage relief would help overburdened households get back on track.
As temporary or unstable jobs - often offering lower wages and job security - increasingly replace traditional middle-class jobs, more investment is needed in vocational education and training systems. Social insurance and collective bargaining coverage for non-standard workers, such as part-time or temporary employees or self-employed, should be extended.
Finally, to foster fairness of the socio-economic system, policies need to consider shifting the tax burden from labour income to income from capital and capital gains, property and inheritance, as well as making income taxes more progressive and fair.
Under Pressure: The Squeezed Middle Class is the latest in a series of OECD reports that have documented over the past decade how inequalities have increased in our societies, making it harder for many citizens to make ends meet.
27 Comments
Am I correct in thinking that there is an increase in articles or documents by 'experts' exploring and ultimately identifying the failures of the 'free market' system? Or were they always being produced, but being ignored? How do we ensure the pollies take note of them, and start to ignore the lobbyists?
Perfectly said by the OECD.
There is a growing crisis of the middle class in the west.
There is a huge political opportunity in this space, for the political party who understands it.
Both of our major political parties don't. Labour pander to the poor, the Nats pander to the upper-middle and above.
The upper middle class Nat voters didn't demand the worlds highest rate of legal immigration especially from India & China.
The poor do not feel pandered. They wonder why jobs that used to be upper working class (for example bus drivers) are now low wage and primary teachers wonder why they are now poor when they used to be comfortable. The Labour govt that cannot find money for nurses and teachers seems to find money for all manner of weird things.
Meanwhile those of the public who give our countries ecology the highest priority wonder why the Greens ignore them and concentrate social justice and on increasing our population with immigrants.
Do our political parties assuming they can rely on votes from a certain section of society then choose to ignore them
Using the definition of middle class provided above wouldn’t lowering the median national wage be the most effective way of increasing the size of the middle class? I fee like we need absolute measures as opposed to these relative measures that result I the logical solution (lowering the median) being societally unpalatable.
It could be middle class to buy, (there is little market for these) but it sure won't be middle class to maintain or even park.This GP will stick to the 30ft, smaller is more fun to sail.
Agree the photo probably does not really represent the struggling middle class; maybe a battle against the elements.
We can see that this was coming from about 1970 on. The fact that the neolibs had to move at all, was an indication that exponential growth was hitting the ceiling. The Third World got hollowed-out first, vis the IMF and the World Bank. The lower classes of the First World got hollowed-out next, via landlordery and ownership of the Commons. Next was always going to be the Middle Class - hollowed out by debt as they tried to buy their way to status. We should be unsurprised.
But the bigger joke is that the remaining elite can't go it alone.
Kind of ok at identifying the symptoms of the problems - “The cost of a middle class lifestyle has increased faster than inflation. Housing, for example, makes up the largest single spending item for middle-income households, at around one third of disposable income, up from a quarter in the 1990s. House prices have been growing three times faster than household median income over the last two decades.”
Terrible with the solutions, they basically say more government when policies and regulation have caused this mess. I don’t want more of the same.
Withay,
But it was the tearing up of regulations that got us into this mess. One small example. Until 1986,stockbrokers in the UK were simply agents. You placed a buy or sell order and the broker looked to fulfill that by matching it with another buyer/seller and taking a commission. But after that,brokers were able to hold their own shares,so suddenly their best interests might not be aligned with mine. In addition,they ceased to have to be partnerships and could have limited liability and again,that changed their view of whose interests were paramount.
I could give you example after example of how the demolition of regulations changed markets and as we can now see with the benefit of hindsight-not for the better-more most people.
The middle class is struggling in the 21st Century first world order. Globalisation has meant the same products can be produced at half the price (or less) in Asia. All cultures have their ups & downs. That's the story of human history. It frightens me to read so much about protecting the poor & the middle classes when we already have half the country on benefits. Our creativity & indeed our lifestyles that went with it are under attack, both from within & outside our society. Internally we are failing at family, relationship & working (or not) which are key ingredients for a cohesive & functioning middle class. But it's hard when your labour is 10 times the cost as it is up the road & the globalisation effect will be to even that out - which is the problem we face today in the first world. We either have to be far more creative & productive than them (& we're not) or the jobs are going to keep disappearing. Strangely enough I feel that AI might be one of our saviours as we don't need billions of people to succeed at that.
Add to that, recent decades have undone many of the tax policies that aided the rise of the middle classes. E.g. land tax, inheritance tax etc. Instead, more and more has been pushed onto money earned as the result of work. Surprise, surprise...what was once recirculated as tax spent on society is now taken our as financial rent on greatly enlarged debt, in NZ's case off-shored to Australia.
The OECD is right with regards to property. At about 6x median household income it is the largest issue and creates a significant divide between those that already own property & those that can't afford it.
Otherwise NZ has more pressing poverty issues to deal with:
- accommodation for the poor rather than motels
- food for the poor rather than food banks
- guaranteed power supply rather than powercards
Trouble is so much of what we use/consume is provided by monstrous foreign corporations, who can repatriate profit and pay little tax here. They are accumulating the world's wealth and the world in the grip of people like Bezos, Zuckerberg and the Chinese Communist govt.
Wresting control from them would mean a not inconsiderable amount of hardship, but I cannot help thinking, it might well be worth it.
They are calling for more of the same toxic policies which have brought us here in the first place. A basic recap of the last 40-50yrs shows anyone with a brain cell that we are on the path to collapse:
1) Pre social welfare/pensions/DPB, etc, families and communities looked after each other and our families and communities were far stronger and united. Today, we live in a "me" culture and the family unit and our communities are broken. No degree required to see that. Delivering more of the same toxic social welfare and big govt policies will NOT improve the situation, it will only get worse. So, in effect, we are no different to the meth addict down the road.
2) Ironically, bigger govt and more regulation have empowered large corporates and monopolies at the expense of small and medium sized family owned businesses. As regulation, taxes, etc, create higher barriers to entry for the small individual to start a business, the big get bigger and society as a whole loses out. This process, which has been going on for decades, is only accelerating and getting worse. Another item to add to the list of "insane" policies.
3) The middle classes are carrying a greater tax burden and for our govt to continue on this path taxes will have to keep rising, which further erode disposable income and this impacts further on SME business viability, and so the negative spiral continues.
4) Govt and the RBNZ have suppressed interest rates, which have led to huge distortions and allocation of capital into unproductive areas. Along with peak debt, future earnings will barely manage to service existing debt, let alone progress.
All in all, it's a very bleak outlook. However, based on historical precedent and human nature being what it is, you can virtually guarantee that the same brain dead policies will continue until we head towards collapse. The tragedy is that we will then not have any options left in order to chart our own destiny. Outsiders, such as the Chinese will then determine our future. Some would say that is what we deserve...
Ludwig, that is a classic example of what happens when someone applies a pre-held ideology to the world.
Yes, we are headed towards near-term collapse. But it wasn't big government, or any size of government, was to blame. So-called free markets, just result in corporations, less and less of them, with more and more clout. Of course Joe Blogg's corner hardware can't compete with Mitre 10. Don't blame government for that. It was the corporations who saw that one-off compliance costs would take the small businesses out. It is corporate money which funds elections.
To get government which keeps us from collapse, we need to be a well-informed society - capable of deciding that 'interest' has to be outlawed, for starters. I don't see any sign of us becoming that smart, indeed I think we're dumbing-down. So collapse we will. Don't worry about debt - the current collection is unrepayable, even now. So inflation or collapse for that, too.
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