Despite the absence of any precise definition of the middle class, there is some consensus in describing it, at least in the advanced economies, as a group comprising the largest portion of society that shares particular values, has relative financial stability and a good quality of life that it expects to pass on to its descendants. The middle class is also understood as a portion of society with the means to live comfortably, whatever «comfortably» really means. This may include elements such as having access to housing, leisure, good-quality health care, a certain level of education, a decent retirement and having the capacity to deal with unforeseen expenses.
Given that economists need objective measures, we attempt to identify the middle class through their consumption patterns or level of income. For instance, OECD studies usually use income levels to identify the middle class, while another branch of the academic literature defines it based on certain consumption levels. We should also note that, whether using consumption patterns or income, they can both be defined either in relative terms or in absolute terms.
The definitions of middle class based on absolute measures classify households’ consumption or income into specific thresholds that are comparable between different countries. For example, much of the academic literature considers that having daily expenses of between 11 and 110 dollars per person (in purchasing power parity terms) is a reasonable measure for identifying the middle class in most emerging economies.1 That said, in many advanced economies the lower threshold of 11 dollars a day lies below what we would consider representative of the middle class.
The middle class can also be defined using relative measures:
- Various institutions use income distribution to classify households that lie between the 30th and 60th percentiles as middle class.2 An advantage of this definition is that it considers middle class to be the third of society that lies in the centre of the income distribution. However, one limitation of this identification method is that it is not possible to study how the size of the middle class changes over time, since, by definition, it will always represent the same percentage of society (30%).
- One measure that can solve this limitation is that used by the OECD in its latest report on inequality,3 which considers middle class the households with an income that represents between 75% and 200% of the median income for their region and year.4 This classification is the most attractive among the relative measures, so it is the one we will use for the remainder of this article.
This lack of clarity on the definition of middle class is probably what lies behind the bias in people’s perception of belonging to the middle class. According to OECD data, in developed countries, on average, there are more people who consider themselves middle class than the number who really are (see first chart). Interestingly, however, this is not the case in Spain, and much less so in Portugal, where much of the middle class consider themselves not to be.
