It is true that the economic crisis is starting to be seen in the rearview mirror and that many of the activity indicators tell us that recovery is a reality that is consolidating. However, almost a decade of crisis is not overcome without leaving scars, and this one has left quite a few that will need time to heal or that will simply remain forever. The health of the so-called middle class is one of those affected by the crisis. All indicators show that this group (which is generally defined as households with an annual disposable income between two-thirds and double the average income) has suffered significant wear and tear during the years of the crisis, which in other words means that it has lost volume and weight in the overall population. The middle class is today a little less "queen" than it was a decade ago.
Between that richest 10% and that poorest 25% lies a middle class that has been losing weight and that allocates a large part of its income to cover the cost of housing.According to the latest dataHousehold Financial Survey of the Bank of Spain, between 2011 and 2014, the year in which the first symptoms of economic recovery began to appear, the average income of Spanish families decreased by 9.7%. At the same time, inequality indicators increased, with a greater concentration of wealth in the highest strata and an expansion of the base groups with lower incomes. And, therefore, with a middle class that has shrunk. Thus, according to the organization, in 2014, the richest 10% of households encompassed 52.8% of all wealth in Spain. In fact, the richest 1% had gone from accumulating 16.87% of wealth in 2011 to having 20.23% after three years. On the contrary, according to data from the Bank of Spain, the poorest 25% of households accumulated more debts than assets in 2014, with a negative net worth of 1,300 euros on average.
Between that richest 10% and that poorest 25% lies a middle class that has been losing weight and that allocates a large part of its income to cover housing costs. This is the result of years with a labor market marked by high unemployment and falling wages that have nullified the sharp drop in real estate prices. Now those prices are beginning to recover, but wages are not yet, which means that a part of that middle class that still lives with a positive balance could end up swelling the ranks of the lower class.
The impact of the crisis has been decisive in changing the country's socioeconomic map, and one of the most evident effects has been the transfer of three million people from the middle class to the most vulnerable strata of society.This erosion of the middle class pointed out by the Family Financial Surveyof the Bank of Spain for 2011-2014 adds to the loss of weight that this social stratum had already accumulated during the first stage of the economic crisis. This effect is clearly observed if one looks at the data from the studyIncome distribution, economic crisis and redistributive policies, prepared by the BBVA Foundation and the Valencian Institute of Economic Research (IVIE), which analyzes the period between 2003 and 2013. According to this monograph, the disposable income of Spanish households was reduced by 20% during that time. In fact, the impact of the crisis has been decisive in changing the country's socioeconomic map, and one of the most evident effects has been the transfer of three million people from the middle class to the most vulnerable strata of society. The data speak for themselves. According to the study, in 2003, 59% of the Spanish population belonged to families with intermediate income levels, that is, between 75% and 200% of the average income, and 31% were at lower levels. Ten years later, these percentages had changed, to 52% and 39% respectively.
The fact that most of families' disposable income (75%) comes from wages and that these have decreased directly or disappeared with soaring unemployment explains, according to the report's authors, why this significant transfer has occurred.
And although the crisis has not been exclusive to this country, if one looks at the data from a report by the American think tank Pew Research Center (PRC), Spain has been one of the European states where this impact on the middle class has been highest. According to this center, between 1991 and 2013, the erosion of this social group has been worrying, going from representing 70% of households to 63%, which contrasts with a more moderate decrease or with the positive balance that has occurred in this same period in other European countries such as France or the Netherlands.
Source: Pew Research Center
In recent years, the International Monetary Fund has also stressed the need to recover the lost weight of middle incomes in advanced economies to avoid the risk of a middle-class crisis that would hinder the recovery of economic activity.According to the PRC report, which coincides with the conclusions drawn by the OECD on this topic, it would be necessary to look towards the United States to find another advanced economy with a smaller middle class. The problem in Spain, like that in the United States, has been the increase in inequality in recent years. Thus, the lower class (which the study places in households with less than 21,257 dollars of annual income) accounted for 25% of the total in 2013, the highest percentage within the sample (the study did not include either Portugal or Greece). In parallel, the upper class accounted for 14% of the total, also a significantly higher percentage than in the rest of European countries, which explains why the middle group (the middle class) has been so reduced.
In recent years, the International Monetary Fund has also emphasized the need to recover the lost weight of middle incomes in advanced economies to avoid the risk of a middle-class crisis that hinders the recovery of economic activity. The key question at this point is whether what has been lost during the crisis years can be recovered. Some data show a somewhat hopeful answer. For example, according to the National Institute of Statistics (INE), the at-risk-of-poverty or social exclusion rate in Spain (called the Arope indicator) stood at 28% in 2016, below the maximum of 29.2% reached in 2014. Although it is still well above the 23.8% of 2008, this slight improvement seems significant.
A change in trend is observed in the latest data on income distribution from the Barcelona City Council, corresponding to 2016. According to these data, the improvement in the labor market and the reduction in unemployment would have begun to bear fruit, and the percentage of Barcelona residents living in neighborhoods with middle incomes grew that year, rising from 44% to 47.8%.A change in trend is also observed in the latest data on income distribution from the Barcelona City Council, corresponding to 2016. According to these data, the improvement in the labor market and the reduction in unemployment would have begun to bear fruit, and the percentage of Barcelona residents living in neighborhoods with middle incomes grew that year, rising from 44% to 47.8%. Here, too, what was lost during the crisis years has not been recovered (in 2007, that weight was 59%), but a change in trend is beginning to be seen.
It will be necessary to see if, and in this case in how many years, the weight that the middle class had in Spain before the crisis can be recovered. The evolution of the labor market and wages will be key to this objective, as all studies point out. The effectiveness of redistributive policies also. But, in any case, the pace of recovery is expected to be slow and will require tools to reduce inequality indicators.