A Political Economy Definition of the Middle Class

TL;DR

This paper introduces a distribution-based definition of the middle class, identifying it as income segments insensitive to inequality changes, and empirically characterizes it using global income data.

Contribution

It proposes a novel, minimally arbitrary, income distribution property-based definition of the middle class and empirically identifies its characteristics worldwide.

Findings

Middle class is skewed toward the upper income distribution.

The middle class's income shares are stable across different inequality levels.

The borders of the middle class remain consistent over time and across countries.

Abstract

Economists often define the middle class based on income distribution, yet selecting which segment constitutes the `middle' is essentially arbitrary. This paper proposes a definition of the middle class based solely on the properties of income distribution. It argues that for a collection of unequal societies, the poor and rich extremes of the distribution unambiguously worsen or improve their respective income shares with inequality. In contrast, such an effect is moderated at the center. I define the middle class as the segment of the income distribution whose income shares are insensitive to changes in inequality. This unresponsiveness property allows one to single out, endogenously and with minimal arbitrariness, the location of the middle class. The paper first provides a theoretical argument for the existence of such a group. It then uses detailed percentile data from the World Income Database (WID) to empirically characterize the world middle class: a group skewed toward the upper part of the distribution - comprising much of the affluent population below the very rich - with stable borders over time and across countries. The definition aligns with the prevailing view in political economy of the middle class as as a moderating actor, given their null incentives to engage in distributive conflict.