The Decline of the Middle Class: An International Perspective

Did the US middle class benefit from the 1990s economic boom? Did this halt or reverse a middle class decline from the previous decade or more? Is a shrinking middle class strictly a US phenomenon with domestic causes, or is a problem that has plagued most of the world economy? This paper will explore these issues. Section II describes previous attempts at defining the middle class. Section III then examines four possible causes of the declining middle class--changing demographic factors, structural economic changes, macroeconomic conditions, and a more Keynesian explanation which depends on the importance of government spending. Section IV describes the Luxembourg Income Study (LIS), which will be used to measure the middle class and to seek the cause of middle class decline in the US and other countries. Section V provides measurements of the middle class for a number of countries using the LIS. Because of the controversy surrounding definitional matters, several different definitions of the middle class are employed. Using the LIS, section VI empirically examines the four different explanations for the shrinking middle class set forth in section III. Finally, we conclude with some policy implications.