Research Institute

The global middle class
The middle class plays a central role in the political and economic
development of all democracies. By defining the middle class in
terms of personal wealth, we examine how the group has fared over
time around the world. Globally, the size and wealth of the middle
class grew quickly before the financial crisis, but growth subsided
after 2007 and rising inequality has squeezed its share of wealth in
every region. Our findings suggest that the middle class in the United
States is now outnumbered by its counterpart in China, and that the
middle class in North America has less than average wealth, the only
region for which this is true.
Throughout the world, the size, health and
resources of the middle class are seen as key
factors in determining the speed and sustainability
of economic development. The middle class is
often at the heart of political movements and new
consumption trends. It is also a major source of
the business people and entrepreneurs who aim
to satisfy new demand and of the funding needed
to support their businesses, particularly in the
early stages. This chapter looks at the changing
circumstances of the middle class since the turn
of the century, within countries and regions as well
as globally.
The middle-class category is not easy to define.
At one time the label was usually attached to households
whose head was a professional or a manager,
or who worked in a skilled white collar or blue collar
job. More recently, it has become common to define
the middle class in terms of a range of household
income which offers a comfortable lifestyle, but not
an overly generous one; in other words a range
which excludes the poor and those vulnerable to
poverty at the bottom end, but also those at the top
with the highest incomes.
We proceed here in a similar vein, but break new
ground by defining the middle class in terms of a
wealth band rather than an income range. This has
many attractions: the values and aspirations of the
middle class have always been linked to ownership
of property, which gives them a stake in the future of
the country and the freedom to view issues from a
longer-term perspective. Furthermore, access to
modest amounts of assets allows households to tide
themselves over when misfortune strikes; in other
words, it ensures less vulnerability to spells of poverty.
An income-based definition of the middle class
misses these elements of freedom and security. It
suggests, for example, that a spell of unemployment
can cause middle-class status to evaporate. A wealthbased
definition, on the other hand, conforms better
to the widespread view that middle-class membership
is resilient to temporary setbacks.
The middle-class wealth range
For a variety of reasons – including the iconic status
of the middle class in North America – the United
States is chosen as the benchmark country. Specifically,
a middle-class adult in the United States is
defined here as having wealth between USD
50,000 and USD 500,000 valued at mid-2015
prices. The lower bound could perhaps be justified
by noting that USD 50,000 equates to roughly two
years of median earnings and hence provides
substantial protection against work interruptions,
income shortfalls or emergency expenditures.
Similarly, the upper threshold of USD 500,000
roughly equates to the amount of capital a person
close to retirement age needs to purchase an
annuity paying the median wage for the remainder
of their life. However, we do not aim to provide a
detailed justification of our chosen cut-offs, which
are intended to be indicative rather than precise.
Other reasonable values for the lower and upper
bounds do not appear to change the broad patterns
and conclusions documented below.
For the years before 2015, the middle-class
wealth bounds for the United States were adjusted
downwards using the US CPI. For other countries,
the IMF series of purchasing power parity (PPP)
PHOTO: ISTOCKPHOTO.COM/AKURTZ
28 Global Wealth Report 2015