New publication

ILO study highlights shrinking middle class in Europe

New book calls for targeted policies to stop the erosion of the middle class in the European Union.

News | 23 November 2016
© Alex Proimos
GENEVA (ILO News) – The middle class in Europe shrank by 2.3 per cent between 2004 and 2011 and, according to the latest available data, the drop has continued since then, a new ILO comparative study finds.

According to the new volume Europe’s Disappearing Middle Class? Evidence from the World of Work, the decline is even deeper in countries such as Germany and Greece. The study is co-published by the ILO and Edward Elgar Publishing in the context of a project supported by the European Commission.

The core middle class – which is defined as those having an income between 80 and 120 per cent of the median income – represents between 23 per cent and 40 per cent of households in the European Union.

The strongest middle class is still to be found in Denmark and Sweden (with 40 per cent and 39 per cent respectively), while Latvia (23 per cent) and Lithuania (24 per cent) have the lowest rate.

“Countries with a stronger middle class are characterized by a higher number of working adults within households and by an increase of the number of households with two incomes,” explains Daniel Vaughan-Whitehead, ILO Senior Economist, who edited the volume.

As an example, the rapid growth of the middle class in Spain since the 1980s can be mainly explained by the spectacular rise of women’s participation in the labour market.

“This also means that one income may now no longer be enough to remain in the middle class. In some cases, certain professions such as teachers and medical doctors, which are commonly categorized as middle class and which typically employ women, may no longer belong to middle income groups,” adds Vaughan-Whitehead.

Shifting to lower income groups

The study also shows the median income around which we define the middle class decreased during the economic and financial crisis, especially between 2008 and 2011.

However, the erosion of the middle class was already visible before the crisis in a number of countries, especially in Germany (-3 per cent per year), but also in Luxemburg, the Netherlands, Greece, the UK, and even in Denmark. Workers in these countries often shifted to lower income groups.

Middle class groups have been hurt by the implications of the crisis on the world of work in countries such as Greece, Spain, Estonia, Cyprus and Portugal. While the middle class was increasing in Spain before the crisis, it has contracted since the beginning of the crisis. Similarly, the growth of the middle class that was visible in most Central and Eastern Europe countries was halted by the crisis.

Targeted policy responses needed

The erosion of the middle class in the world of work has been driven by a complex set of factors, whose relative importance varies according to national contexts. In some countries, lower wages and falling employment in the public sector – that hurt women’s participation more in this sector – led to the decline of the middle class. In other countries, the emigration of certain categories of workers and professions has played an important role. The lower quality of jobs and the growth of the low pay sector were also found to be determinant factors as well as the progressive weakening of collective bargaining mechanisms. By contrast, stable industrial relations – as witnessed in the Netherlands, Sweden, Belgium and France – led to greater stability of the middle class in those countries.

The book includes specific chapters on the Baltic States, Belgium, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and the United Kingdom.

“The erosion of the middle class is worrying – especially as it hits young people most of all, thus leading to an income gap between generations. Increased inequalities and the progressive erosion of the middle class, therefore, requires policy action specifically aimed at stopping this trend. This would not only improve living standards but also boost sustained economic growth,” concludes Heinz Koller, ILO Assistant Director-General and Regional Director for Europe and Central Asia.