A Global Middle Class Is More Promise than Reality
Despite Poverty’s Plunge, Middle-Class Status Remains Out of Reach for Many
Updated August 13, 2015: This new edition includes corrected estimates for Iceland, Luxembourg, the Netherlands and Taiwan, and some related aggregated data.
From 2001 to 2011, the poverty rate—the share of people living on $2 or less daily—fell in 83 of the 111 countries examined in this study.38 In a few cases, most prominently China, poverty’s retreat was accompanied by significant gains in the share of middle-income earners. But in most countries, the majority of people emerging from poverty took only a modest step up the income ladder, changing their status from poor to low income.
This section of the report focuses on those countries where poverty declined dramatically, but an expanded middle class failed to materialize. The case of India is highlighted, given that it is a global demographic and economic force. India stands as a counterpoint to China and underscores China’s unique role in boosting the Asia & South Pacific share of the global population that can be considered middle income. Much of the region, similar to Africa, remained either poor or low income as of 2011.
Poverty Retreats in India, but the Middle Class Barely Expands
The poverty rate in India fell from 35% in 2001 to 20% in 2011. That meant that 133 million Indians exited poverty in that decade, the second-largest drop globally after China. However, the drop in poverty merely resulted in an increase of 273 million in the low-income population, whose share rose from 63% in 2001 to 77% in 2011.
The middle-income population in India barely budged during the decade. Its share increased from 1% in 2001 to 3% in 2011, still small by any measure. The number of middle-income people grew by 17 million, paltry compared with the increase in the low-income population.39 From these trends, the middle-income threshold appears more like a barrier as only a small share in India stepped across the line from 2001 to 2011.
It is clear from these estimates that India did not keep pace with China in creating a middle class in this century. The median daily per capita income in India increased relatively slowly, rising from $2.39 in 2001 to $2.96 in 2011, a gain of only 24%, compared with 126% in China.40
The difference in the timing of economic reforms, which began in 1978 in China and in 1991 in India, is likely one reason behind the disparate outcomes. The relative depth of the reforms and differences in investment, both domestic and foreign, are probably among other factors leading to divergent trajectories from 2001 to 2011.41 Whether India eventually follows China, with a greater share of its population crossing the middle-income threshold of $10 per day, remains to be seen.
Is India’s Middle Class Underestimated?
The finding that only a small share of India’s population is middle income or of a higher status is echoed in previous studies (Birdsall, 2012 and 2015). It is possible that household surveys in India, which record consumption only, understate household well-being as might be measured using income. Deaton (2003) also notes that India is an outlier in the extent to which growth in consumption, as measured in household surveys, lags behind growth in income, as measured from national income accounts. Researchers who adjust household consumption data to account for the gap vis-à-vis estimates of income find that a somewhat larger share of India’s population is middle income. Birdsall (2012) finds that 70 million Indians, or 6% of the population, lived on $10-50 daily in 2010. Kharas (2010) estimates that 5-10% of India’s population earned $10-100 daily in 2010. Both estimates are based on 2005 purchasing power parities.
Few Countries See Both Poverty Shrink and Middle-Income Ranks Swell
Among the 83 countries in which poverty fell in the first decade of the new century, 26 experienced a decline of at least 15 percentage points. This group includes 22 countries that matched or bettered India’s 16 percentage point reduction in the share of their populations that could be considered poor. Some of these countries had very high poverty rates initially, such as Tanzania, where 89% of people were poor in 2001, but others were not so poor, such as Kazakhstan, where the poverty rate in 2001 was 18%. With the exception of Argentina, Ecuador and Moldova, all of these countries are in Africa or Asia & South Pacific.
The greatest decrease in the poverty rate was in Tajikistan, where the poverty rate plunged 45 percentage points, from 72% in 2001 to 27% in 2011. Kazakhstan nearly eliminated poverty in the 2000s: Its poverty rate fell from 18% in 2001 to less than 0.5% in 2011. Likewise, several other countries with poverty rates near 20% or higher in 2001 virtually extinguished poverty by 2011. Countries with this distinction include Bhutan and Moldova, where the initial poverty rates were 33% and 31%, respectively. Kyrgyzstan lowered its poverty rate from 42% in 2001 to 7% in 2011.
It should be noted that in four African countries—Côte d’Ivoire, Kenya, Madagascar and Zambia—poverty actually increased significantly from 2001 to 2011. The most notable situation transpired in Zambia, where the poverty rate rose from 47% to 64%. The rate in Kenya increased from 22% to 31%, in Cote d’Ivoire from 17% to 24%, and in Madagascar from 71% to 76%.42
In the 26 countries in which the poverty rate fell by at least 15 percentage points from 2001 to 2011, only Bhutan, Moldova, China, Ecuador, Argentina and Kazakhstan experienced double-digit gains in the share of their middle-income populations. The table in this section illustrates how the experience of these countries compares with the other countries that also had major declines in poverty. In most cases, falling poverty rates were almost exclusively associated with burgeoning shares of low-income earners. Few countries had substantial gains among people who are middle income, upper-middle income or high income. Indeed, many countries experienced an almost one-to-one move from poverty to low-income status. A prime example is Tajikistan, where the 45 percentage point drop in poverty from 2001 to 2011 led to a 43 point increase in the share of the low-income population.
Relationship Between Changes in Poverty and Middle-Income Growth
The more general relationship between reductions in poverty and the share of a country’s population that is low or middle income is illustrated in the scatter plots. The plots represent 79 countries that are not high income (by the World Bank’s classification) and that did not experience an increase in poverty. Across these 79 countries, there is a notably positive association between reductions in poverty and increases in the low-income population. However, there is no discernible association between poverty reduction and growth in the share of the middle-income population from 2001 to 2011.
Low-Income and Poor Populations Still Widespread in Asia and Africa
As the preceding sections underscore, many of the countries that began the 21st century as largely impoverished continue to be home to populations that are mostly poor or low income. Even in China, where the number of middle-income earners increased substantially between 2001 and 2011, a majority of the population is still either poor or low income.
Regionally, the world’s poor and low-income populations are concentrated in Asia & South Pacific and Africa. These are vast regions, comprising 76 and 58 countries, respectively, according to United Nations classifications. This study encompasses 28 countries in Asia & South Pacific—accounting for 3.8 billion of the region’s population of 4.2 billion in 2011—and 30 countries in Africa—home to 826 million of the continent’s population of 1.1 billion.
In 18 of the 28 countries in Asia & South Pacific that are covered in this study, about eight-in-ten or more people were either poor or low income in 2011, living on $10 or less per day. This group includes India, where 97% of the population is poor or low income, and China, where the share is 78%. In four countries—Bhutan, Iran, Kazakhstan and Thailand—about six-in-ten or more were poor or low income in 2011.
Seven countries in Asia & South Pacific, from among those covered in this study, have at least one-in-five people who are middle income: Jordan (43%), Turkey (35%), Kazakhstan (32%), Malaysia (31%), Thailand (29%), Iran (27%) and Bhutan (23%). Jordan and Malaysia also have significant shares of people who are either upper-middle income or high income, 21% and 37%, respectively. The region also has advanced economies, such as Israel, Australia and Taiwan, in which poverty is virtually absent and the majorities of the population are higher income.43
Africa is the poorest region overall, with more than nine-in-ten people who are poor or low income in almost all 30 countries studied. Only in Seychelles, Tunisia, South Africa, Morocco and Egypt were one-in-five people or more either middle income or better off in 2011. And only Tunisia and Morocco experienced notable growth in the shares of their middle-income population from 2001 to 2011, from 17% to 27% in Tunisia and from 11% to 19% in Morocco. In Egypt, the share of middle-income people increased from 17% in 2001 to 21% in 2011, and in South Africa the share rose from 11% to 14%.
Because the populations of most countries in Asia & South Pacific and Africa are overwhelmingly poor or low income, these two regions account for most of world’s poor and low-income populations. This did not change from 2001 to 2011 because the growth in the middle was also limited in these countries.
In 2001, 75% of the world’s population in poverty lived in Asia & South Pacific. An additional 20% lived in Africa, meaning that these two regions accounted for 94% of the global population in poverty. Driven by economic growth in China and India, the share of the global poor residing in Asia & South Pacific dropped to 62% by 2011. Ironically, this had the effect of raising Africa’s share of the global poor from 20% in 2001 to 34% in 2011 even though the rate of poverty within Africa fell during that period.
The share of the global low-income population living in Asia & South Pacific and Africa actually increased from a combined total of 82% in 2001 to 89% in 2011. This is a direct consequence of the trends noted earlier in this section: Most of the reduction in poverty in these two regions resulted in larger shares for the low-income population with limited gains in the middle.
Advanced Economies and the Growth in High-Income Populations
The vast majority of people in advanced economies are upper-middle income or high income by the global standard—more than eight-in-ten, typically. Middle-income populations are scarce in these economies and also diminishing as a share of the populations. Likewise, the share that is upper-middle income is shrinking in most advanced economies, while the share that is high income is rising. For these reasons, this section focuses on the growth of high-income populations in the U.S., Canada and countries in Western Europe.
Advanced Economies Retain Their Grip on the Global High-Income Population
The overwhelming majority of the world’s high-income populations are found in either North America or Europe.44 There was little change in this reality in the 2000s, serving to emphasize the economic divide that separates the advanced economies from the rest of the world. Even the rapid changes unfolding in China did little to close the gap on this metric from 2001 to 2011.
In 2001, nine-in-ten (91%) high-income people lived in Europe or North America. This share decreased only slightly over the next 10 years, to 87% in 2011. Some of the movement was in the direction of Asia & South Pacific with that region’s share climbing from 6% in 2001 to 8% in 2011.45
The main realignment in the high-income population was in a shift from North America to Europe. The share of North America in the global high-income population decreased from 54% in 2001 to 46% in 2011, and Europe’s share increased from 37% to 41%. As shown further below in this section, several countries in Western Europe had higher shares of high-income populations than the U.S. in 2011.
Countries with the Largest Gains in Shares of High-Income Populations
Members of the OECD, the Organization for Economic Cooperation and Development, dominate the list of countries with the most substantial gains in the shares of high-income people from 2001 to 2011. Norway is the leading country, with the share of its high-income population increasing from 56% in 2001 to 77% in 2011, or by 21 percentage points. Luxembourg is not far behind, raising the share of its high-income population from 58% to 74% in the decade.
Eastern Europe is also represented in this group of high-income gainers, with Croatia, the Czech Republic, Estonia and Russia making their way into the top 20. But in these four countries, only about 10% or less of their populations were at the high-income level in 2011. The same is true for Malaysia and Uruguay, the other two non-OECD members in this list of countries.
Most of the OECD members with notable gains in the share of high-income populations from 2001 to 2011 were already quite well off at the start of the decade. Greece, where 11% of the population was high income in 2001, was one of the trailers in the group, along with the Czech Republic and Estonia. Otherwise, the share of high-income people in 2001 ranged from 17% in Italy to 66% in Denmark.
There are two prominent absentees from the list of well-to-do countries that also led the charge up the income bracket in the 2000s. In Germany, the share of people who are high income increased only slightly, from 56% in 2001 to 58% in 2011. As noted, the U.S. had the unfortunate distinction of slipping backwards as the share of its high-income population decreased from 58% in 2001 to 56% in 2011.
Distributions of People by Income in the U.S., Canada and Europe
The majority of the U.S. population is high income, making it one of only 10 countries (among the 111 analyzed for this report) where this was true in 2011.46 Also, about one-third of Americans are upper-middle income. But the U.S., among the richest countries in the world, experienced little change on this score in the 2000s. The proportion of Americans who are upper-middle income barely moved from 31% in 2001 to 32% in 2011, and the share that is high income actually fell, as noted, from 58% to 56%.
The lack of movement up the income ladder in the U.S. is the result of two recessions over the period of 2001 to 2011—the first in 2001 and the second from 2007 to 2009. The median annual household income in the U.S. fell from $53,646 in 2001 to $50,054 in 2011 (U.S. Census Bureau).47 Longer-run trends such as globalization, decline of unions, technological change, and the rising cost of benefits, such as health care, are also said to be factors.48
Unlike in the U.S., Canadian residents progressed from upper-middle income to the high-income standard of living. The share of the Canadian population that is upper-middle income decreased from 40% in 2001 to 36% in 2011 and the share that is middle income fell from 9% to 6%. Over the same period, the proportion of high-income residents in Canada increased from 49% to 56%, catching up to the U.S. in the process.
The disparate trends in Canada and the U.S. may be due to the fact that the effects of the Great Recession were milder in Canada.49 Also, income growth for Canadians in the middle of the income distribution may have been relatively stronger than for Americans in a similar position. Not only is income inequality lower in Canada in comparison with the U.S., but, unlike in the U.S., there was no increase in inequality in Canada from 2001 to 2011.50
The proportion of the high-income population also increased in Western Europe, from 35% in 2001 to 44% in 2011. As in Canada, the share of those who are upper-middle income in Western Europe decreased during this time period, from 49% to 43%. The share of middle-income residents in Western Europe also decreased.
Compared with the U.S., Western Europe overall has a smaller share of its population at the high-income level. But this is not true for all countries in Western Europe. This report covers 13 major countries in Western Europe and, as shown in the next section, the share of the population that is high income in 2011 exceeds the share in the U.S. in many of these countries.
How Western Europe managed to increase the share of its population that is high income but the U.S. did not is not unequivocally clear. Some countries in Western Europe, such as Finland and Luxembourg, averaged a higher rate of growth in national income than the U.S. from 2001 to 2011. At the same time, though, other countries, such as Germany and Denmark, did not keep pace with the U.S. The answer may lie in the distribution of economic gains. Compared with the U.S., the level of income inequality is lower in all 13 Western European countries studied and it also trended up less, if at all, from 2001 to 2011.
Eastern Europe, composed largely of transition economies, is very different from Western Europe. Only 5% of the population in Eastern Europe was high income in 2011. However, the economies of Eastern Europe were among the world leaders in raising the shares of their population that are middle income and upper-middle income. These trends were discussed in detail in a preceding section and are not reported on again in this section.
Income Growth Stalls in the U.S., and Other Advanced Economies Catch Up
In 2001, only three countries in Western Europe for which data are available—Germany, Luxembourg and Denmark—matched or exceeded the U.S. in the shares of their population that were high income. The shares in the U.S., Germany and Luxembourg were the same—58%—while two-thirds (66%) of the Danish population was high income.
By 2011, the share of the high-income population in the U.S. had slipped to 56%. Partly due to the reversal in the U.S. and partly due to their own economic growth, seven countries in Western Europe had the same or higher shares in the high-income bracket in 2011: Norway (77%), Luxembourg (74%), Denmark (73%), the Netherlands (68%), Germany (60%), Iceland (60%) and Finland (56%). Of this group, only Denmark was better than the U.S. on this front in 2001.51
Also, with the exception of Greece, Iceland, Italy and Spain, smaller shares of the populations of countries in Western Europe were living in poverty or with a low income in 2011. In the U.S., 5% of the population was in poverty or low income in 2011. The highest share in Western Europe was Spain at 7%, and the lowest share was 0.1% in Luxembourg. In Canada, only 1.3% of the population was either poor or low income in 2011.
- Countries that did not experience a decline in the poverty rate are mostly advanced economies, such as the U.S. and Germany, in which only about 1% or less of the population is poor (by the global standard). ↩
- Even though the share of the population that is middle income in India is low and increased little in the 2000s, the increase of 17 million was the fourth largest in the world, trailing only China, Brazil and Ukraine. ↩
- The growth in median income (actually consumption) in India may understate the true extent of growth. The International Monetary Fund (IMF) estimates of GDP per capita, in constant prices and national currency, show an increase of 82% in India from 2001 to 2011. This issue is discussed in detail by Deaton (2003), who also notes that the gap between estimates from household survey and national accounts is especially large in India. ↩
- Growth patterns in India and China are analyzed in Wignaraja (2011), Bosworth and Collins (2007) and Basu (2009). ↩
- Slow economic growth underlies these developments. For example, the World Bank (2010, 2014b) reports that Zambia was excessively dependent on a single sector—copper—for economic development and that there was scant growth in GDP per capita in Kenya from 1990 to 2012. ↩
- Data on Japan, South Korea, Singapore and several Middle East countries were not available to enable analysis for the period 2001 to 2011. ↩
- The region of North America includes Mexico. ↩
- Asia & South Pacific’s share may be understated because Japan, South Korea and Singapore could not be included in the analysis. Some countries from Western Europe, including Belgium, Sweden and Switzerland, are also missing from the analysis. ↩
- The other nine countries are Australia, Canada, Denmark, Finland, Germany, Iceland, Luxembourg, the Netherlands and Norway. ↩
- Incomes expressed in 2011 dollars. ↩
- Congressional Budget Office (2011) and Baicker and Chandra (2005) ↩
- IMF estimates of GDP in constant prices and national currencies show that Canada averaged an annual growth rate of 1% from 2007 to 2010 compared with 0.3% in the U.S. From 2001 to 2011, Canada averaged 2% annually and the U.S. averaged 1.7%. ↩
- The OECD reports that the Gini coefficient, a common measure of income inequality, was 0.317 in Canada in 2001 and 0.316 in 2011. In the U.S., the Gini coefficient increased from 0.360 in 2001 to 0.389 in 2011. A similar view emerges from another measure of inequality, the ratio of incomes at the 90th and 50th percentiles of the income distribution. OECD data are available at http://www.oecd.org/social/income-distribution-database.htm. ↩
- This analysis is based on gross household incomes. Because taxes and social contributions are generally higher in Western Europe, a comparison based on disposable household income may find that fewer countries in Europe have higher shares of high-income populations than the U.S. in 2011. ↩