April 24, 2017

Middle Class Fortunes in Western Europe

Appendix B: Middle-income boundaries depend on household size and vary over time

The income it takes to be middle class depends on the number of people in a household, and it also changes over time. The income varies by household size because smaller households require less income than larger households to support the same lifestyle. It changes over time because middle-income households are defined as those with an income that is two-thirds to double that of a country’s median household income in any given year. Since the national median income fluctuates with economic expansions and contractions, the boundaries that define the middle-income tier also shift over time.

The minimum income a five-person household needs to be in the middle-income tier is more than double the income needed by a one-person household.32 In Denmark, for example, a one-person household needed at least $16,611 to be considered middle income in 2010. In contrast, a five-person household required $37,143 to be middle income. Similarly, the threshold for entry into the middle-income tier in Spain ranged from $12,273 for a one-person household to $27,443 for a five-person household. (Incomes are expressed in 2011 prices and purchasing power parities.)

The threshold for entry into the upper-income tiers also varies in accordance with household size. In Denmark, one-person households living on $49,833 or more were in the upper-income tier, but five-person households were required to have incomes of $111,430 or greater. This pattern repeats across all countries.

Because median national incomes have risen since 1991 in most countries, the threshold for attaining middle-income status has also shifted up since 1991. In Norway, for example, the national median disposable household income increased from $35,001 in 1991 to $57,031 in 2013, scaled to a households size of three and expressed in 2011 prices and purchasing power parities. As a result, the minimum income needed to be middle income – two-thirds of the national median – increased from $23,334 in 1991 to $38,021 in 2013, for three-person households.

But there may be interruptions to the upward progression in incomes. In the U.S., for example, the Great Recession of 2007-2009 caused the national median income to fall from 2000 to 2013. More specifically, the median household income in the U.S. increased from $48,343 in 1991 to $53,677 in 2000, but fell to $52,195 in 2013.

 

With the rise in disposable incomes in the 1990s, the threshold for attaining middle-income status in the U.S. increased from $32,229 in 1991 to $35,785 in 2000, for three-person households expressed in 2011 prices and purchasing power parities. But with the economic reversals since 2000, the entry threshold fell to $35,294 in 2010 and dropped further to $34,797 by 2013. Likewise, the top end of the middle-income range also rose and fell in the U.S., starting at $96,687 in 1991, rising to $107,354 in 2000, and falling to $104,390 in 2013.

  1. See Methodology for the method used to adjust incomes for household size.