Do Economic Recessions 'Squeeze the Middle-Class'?

41 Pages Posted: 25 Oct 2017

See all articles by Alberto Batinti

Alberto Batinti

Xi'an Jiaotong University (XJTU) - International Business School Suzhou

Joan Costa-Font

London School of Economics & Political Science (LSE)

Date Written: October 16, 2017

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’.

Keywords: middle-class size, economic recessions, employment shocks, income distribution

JEL Classification: F220, I300, J640

Suggested Citation

Batinti, Alberto and Costa-Font, Joan, Do Economic Recessions 'Squeeze the Middle-Class'? (October 16, 2017). CESifo Working Paper Series No. 6673. Available at SSRN: https://ssrn.com/abstract=3058555

Alberto Batinti (Contact Author)

Xi'an Jiaotong University (XJTU) - International Business School Suzhou ( email )

111 Ren’ai Road,
Suzhou Lake Higher Education Town,
Suzhou, Jiangsu 215123
China

Joan Costa-Font

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://joancostaifont.org/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
200
PlumX Metrics