Defining and profiling the middle class

1 ISSN 2508-0865 (electronic) No. 2018-18 (December 2018). Defining and profiling the middle class Jose Ramon G. Albert, Angelo Gabrielle F. Santos, and Jana Flor V. Vizmanos The middle class is crucial in society. With better The middle class educational attainment and savings, middle - class Just as there is no universally accepted definition workers hold critical roles in higher value-added of poverty, there is also no internationally accepted sectors, particularly in services (Doepke and Zilibotti definition of the middle class (Joliffe and Prydz 2005, 2007). They are also willing to pay for better- 2016). Among social scientists, definitions of the quality products and services, and their demands middle class vary widely. Birdsall (2010) defined encourage investments in production and marketing, middle class through nonmonetary lenses, such as raising general income levels (Murphy et al. 1989). profession, education, or social values.

2 Meanwhile, economists tend to define the middle class through The middle class is also key to enhancing human monetary lens. Even among them, however, there is capital given their large investments in education no consensus on a definition. Some studies defined and health care (Banerjee and Duflo 2008; Albert et middle income in an absolute sense, such as an al. 2015). They also play a role in the improvements income range at purchasing power parity, while others in public services, not only as a source of public use a relative sense, such as thresholds based on the revenues via taxes but also as agents of change average income (Albert et al. 2015). (Huntington 1991). Modifying slightly the work of Albert et al. (2015), In AmBisyon Natin 2040, Filipinos have articulated a which defined seven clusters of the income distribution long-term goal to live in a prosperous, predominantly using thresholds based on multiples of the official middle - class society where no one is poor (NEDA poverty line, this study grouped the seven clusters into 2016, p.)

3 3). This Policy Note profiles middle - class three income classes in such a way that the two lowest persons and families in the Philippines. It also clusters form the low-income class , the two highest examines the country's progress in achieving long- clusters form the high-income class , while the three term objectives of a largely middle - class society. middle clusters form the middle -income class (Table 1). Table 1. Indicative range of monthly family incomes (for a family of 5): Philippines, 2015 and 2017. Income Cluster Definition: Per-Capita Income Indicative Range at 2015 prices at 2017 prices 1. Poor Less than official poverty threshold Less than PHP 9,100 Less than PHP 9,520. 2. Low-income class (but Between the poverty line and twice the Between PHP 9,100 Between PHP 9,520. not poor) poverty line and PHP 18,200 and PHP 19,040. 3. Lower middle -income class Between two and four times the poverty line Between PHP 18,200 Between PHP 19,040.

4 And PHP 36,400 and PHP 38,080. 4. middle middle -income class Between four and seven times the poverty line Between PHP 36,400 Between PHP 38,080. and PHP 63,700 and PHP 66,640. 5. Upper middle -income class Between 7 and 12 times the poverty line Between PHP 63,700 Between PHP 66,640. and PHP 109,200 and PHP 114,240. 6. Upper-income class (but Between 12 and 20 times the poverty line Between PHP 109,200 Between PHP 114,240. not rich) and PHP 182,000 and PHP 190,400. At least equal to 20 times the poverty line At least PHP 182,000 At least PHP 190,400. Source: Authors' calculations based on 2015 and 2017 Family Income and Expenditure Surveys (FIES) (PSA 2015a, 2017). In other words, those belonging to the middle -income Place of residence class are families (or persons belonging to families) Urban dwellers are predominantly middle income. In that have incomes between 2 and 12 times the 2015, 3 in 5 urban residents were middle income, poverty line.

5 In 2017, a family of five would thus be while only 1 in 20 was high income. Among rural middle income if its monthly income ranged roughly households, only a third were middle income, while between PHP 20,000 and PHP 115,000. more than three-fifths were low income. Making use of data sourced from the Family Income Among the regions , it is in National Capital Region, and Expenditure Survey (FIES), conducted by the Central Luzon, and CALABARZON where the middle class Philippine Statistics Authority, this study described dominantly reside. In 2015, more than half of them the middle -income class relative to low- and high- lived in these areas. As these areas have wide access to income classes in terms of place of residence, work commercial and manufacturing establishments, most of status and occupation, educational attainment, the middle class also work in these regions . schooling decisions, housing tenure, access to water, and overseas employment.

6 Employment Merged data from the Labor Force Survey (LFS) and According to latest data from the FIES (PSA 2015a), FIES (PSA 2015a, 2015b) showed that the members about 2 in every 5 ( ) Filipinos belonged to of the middle -income households were working middle -income class , nearly three-fifths ( ) outside the agriculture sector. In fact, only 11 percent to low-income, and the remaining ( ) to of them depended on agriculture, most of whom high-income. Such shares of the income classes belonged to the lower middle -income cluster. hardly changed since 2006 (Figure 1). In terms of households, less than half ( ) were middle A quarter of the middle income worked in wholesale income in 2015, while a bigger proportion ( ) and retail trade, with jobs such as vegetable vendors belonged to low-income class . or sari-sari store owners. Nearly a fifth (17%) were 2 w Defining and profiling the middle class Figure 1: Population distribution, by income cluster: 2006-2015.

7 Figure 1:1: Figure Population Figure distribution, Population byby distribution, 1: Population income distribution, cluster: income 2006-2015. cluster: by income 2006-2015. cluster: 2006-2015. Figure Figure Figure 1:1: Population Population 1: Population distribution, distribution, distribution, byby income income by income cluster: cluster: cluster: 2006-2015. 2006-2015. 2006-2015. Figure 1: Population distribution, by income cluster: 2006-2015. Figure 1. Population distribution, by income cluster: Philippines, Education 2006 2015 Educational attainment correlates with income (Table 2). In 2015, half of middle - income persons aged 24 years and above attained education beyond secondary education. While this figure was lower than that of the high income (78%), it was higher than the corresponding proportion for low income (13%). As of 2015, only a quarter (23%) of the lower middle income finished college.

8 Nonetheless, this figure was higher among middle and upper middle income at 47 percent and 62 percent, respectively. Meanwhile, a majority (59%). 2006 2009 2012 of the low income 2015 did not finish high 2006. 20062006 2009. 20092009 2012. 20122012 2015. 2015 2015. 2006. 20062006 2009. 20092009 2012. 20122012 2015. 2015 2015 school given high immediate economic 2006 2009. Poor 2012 Low income but not poor 2015 Lower middle income Poor PoorPoor PoorPoor Poor Poor Low Low Low Low Low income income Low income income Low income butbut income but notnot not income butbut poor but poor notnot but not poorLower poor poor poor not poorLower middle Lower Lower Lower Lower income middle Lower income middle income middle -income middle middle middle income income income needs particularly among the poor. Poor Low income but not poor Lower middle income middle middle income Upper middle income Upper income but not rich middle middle middle middle -income middle middle middle income income middle Upper income Upper middle -income Uppermiddle income middle Upper income Upper income middle Upper income Upper income income Upper income but butbut not notrich rich not but notrichrich middle middle middle middle middle middle income income income Upper Upper Upper middle middle middle income income income UpperUpper Upper income income income butbut notnot but not rich Merged FIES-LFS data (PSA 2015a, rich rich middle middle income Upper middle income Upper income but not rich Rich Rich 2015b) also showed that increased Rich RichRich Rich RichRich Source: Authors' calculations based on 2006, 2009, 2012, and 2015 FIES (NSO 2006, 2009, 2012.)

9 Rich Source: Authors' calculations on NSO (2006, 2009, 2012); PSA (2015a) school participation rates were associated PSA 2015a). Source: Source:Authors'. Source:Authors' calculations Authors'calculations calculationsononNSO on (2006, NSO NSO(2006, 2009, 2009, (2006, 2012);. 2012);. 2009, PSAPSA. 2012); (2015a). (2015a). PSA (2015a). Source: Source: Source: Authors'. Authors'. Authors'. calculations calculations calculationsononNSO NSO. on (2006, NSO(2006, (2006, 2009, 2009, 2009, 2012);. 2012);. 2012);. PSAPSA (2015a). PSA. (2015a). (2015a) with higher-income levels. In 2015, the Source: Authors' calculations Placeon of NSO (2006, 2009, 2012); PSA (2015a). residence Place of of residence school Place Place Place Place Place of of residence inof transport, residence residence Urban dwellers are predominantly of residence communication, residence and storage, middle -income. usually In 2015, threeattendance in five urbanrate of children residents were aged 5 14 years Urban Urbandwellers dwellers Urban Place of areare dwellers residence predominantly predominantly are predominantly middle -income.

10 middle -income. middle -income. In In 2015, 2015, In three three 2015, in five in three inurban five urban five residents residents urban were were residents were Urban Urban Urban dwellers dwellers dwellers workingareare predominantly are as middle -income, predominantly predominantly tricycle and jeep while middle -income. middle -income. only middle -income. driversIn In 1. 2015,in 2015, or 20. Inbus 2015,was three threein high-income. three in five five conductors. inurban five urban Among urban residents residents rural residents from were were households, were middle -income only a third were families was 93 percent, higher middle -income, middle -income, middle -income, Urban dwellers while while only arewhile only 1only predominantlyin 1 in20. 120was in was 20 high-income. high-income. was Among high-income. middle -income. InAmong rural Among 2015, rural three households, households, rural in only households, five urban onlyaonly thirda were a third residents were third were middle -income, middle -income, middle -income, while whilewhile onlyonly 1middle-income, only in 1 in20.