Tuesday, June 17, 2008

What does middle class mean in the developing world?

The Journal of Economic Perspectives has a spring issue on development economics. This is a great journal to read if you want to learn what’s going in economics, but don’t want to/can’t read a bunch a bunch of Greek letters. The first paper in the issue by Abhijit Banerjee and Esther Duflo uses household surveys from 13 countries (including Mexico, Pakistan, South Africa, and India) to give an overview of what the middle class is like in the developing world. To start with Banerjee and Duflo define middle class as those living off of between $2-10 a day per person. To compare a family of 5 at the poverty line in the US would spend $13 a day per person. I like the Table 2 from the paper (shown in the picture to the right) to give you an idea of the relationship between income and spending. For the most part until people reach $2 a day per person more money goes to more/better food. The percent of income spent on food drop for those earning between $2-4 a day per person and even further for those earning $6-10.

With that extra money households can get increased access to water, more education, and get televisions.

Perhaps the most telling results from their overview is the employment of the different levels of consumption. Those who live off of less than $1 a day tend have temporary employment, while those living off $6-10 a day are much more likely. As the authors put it “Nothing seems more middle class than the fact of having a steady well-paying job.”

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