The Squeezed Middle

The Institute for Fiscal Studies has forecasted huge declines in living standards over the next couple of years - they reckon that median incomes will fall by about 7% in real terms (click here).  Although, the phenomenon of the squeezed middle has been recognised by sociologists and economists for a long time, the recent crisis has exacerbated the situation for the middle classes in the UK (and other economies).  First, the value of the main asset of the middle classes (their homes) has collapsed, with the result that many are in negative equity.  Second, middle classes savings have been hit by negative real interests.  Third, they have taken large real pay cuts.  Fourth, the value of their pension has been eroded.  Fifth, universal child benefits are set to disappear and university tuition fees have trebled.  I could go on....

Recent work on long-run income and wealth inequality shows that Western society has become more unequal since the 1970s- see, for example, my own work on Irish wealth inequality over the long run.  In addition, work on tax regimes by Piketty and Saez clearly shows that they have become substantially less progressive since the 1970s.

These trends raise lots of interesting questions for social scientists.  Why and when did the middle class emerge?  Is the middle class necessary for the functioning of democracy?  Will the middle classes in the West disappear?  What is the future for the middle classes of the developing world? (click here for an article on the middle classes in developing economies).  

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