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Do Economic Recessions ‘Squeeze the Middle-Class’?

Author

Listed:
  • Alberto Batinti
  • Joan Costa-i-Font

Abstract

Economic downturns give rise to unexpected employment shocks that can reshape the distribution of population income, and hence produce a “middle-class squeeze”. However, there is limited empirical evidence testing the latter. This paper aims at testing the ‘middle-class squeeze’ hypothesis drawing from unique data from the Luxembourg Income Study (LIS) for several years, including the period of the Great Recession, and the Integrated Values Study (IVS) obtained by merging data from the World Value Survey (WVS) and the European Values Study (EVS). We examine the association between changes in unemployment in a recession drawing upon a heterogeneous set of both income and middle-class definitions as well as an extensive list of controls and different recession periods. Our findings suggest no robust evidence that recessions produce a middle-class squeeze, though they increase the share of the population regarding itself as ‘middle class’. The effect is heterogeneous to the baseline unemployment at the time of a recession, country spending on social protection and middle-class measurements and definitions. However, when we restrict our analysis to the recent Great Recession, we do find some evidence of a ‘middle-class squeeze’.

Suggested Citation

  • Alberto Batinti & Joan Costa-i-Font, 2017. "Do Economic Recessions ‘Squeeze the Middle-Class’?," CESifo Working Paper Series 6673, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6673
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp6673.pdf
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    References listed on IDEAS

    as
    1. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
    2. Luis López-Calva & Eduardo Ortiz-Juarez, 2014. "A vulnerability approach to the definition of the middle class," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(1), pages 23-47, March.
    3. Abhijit V. Banerjee & Esther Duflo, 2008. "What Is Middle Class about the Middle Classes around the World?," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 3-28, Spring.
    4. Easterly, William, 2001. "The Middle Class Consensus and Economic Development," Journal of Economic Growth, Springer, vol. 6(4), pages 317-335, December.
    5. Matthias Doepke & Fabrizio Zilibotti, 2005. "Social Class and the Spirit of Capitalism," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 516-524, 04/05.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do Economic Recessions Squeeze the Middle-Class?
      by maximorossi in NEP-LTV blog on 2018-02-27 12:22:51

    More about this item

    Keywords

    middle-class size; economic recessions; employment shocks; income distribution;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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