Publication: The Gradual Rise and Rapid Decline of the Middle Class in Latin America and the Caribbean
Loading...
Published
2021-05-20
ISSN
Date
2021-06-24
Author(s)
Editor(s)
Abstract
Latin America and the Caribbean (LAC) reported over 30 million Coronavirus (COVID-19) cases and around 960,000 deaths as of May 2021. Official tracking data shows that Brazil, Colombia, and Argentina have the highest number of reported cases throughout LAC, which in turn is the region with among the highest numbers across all developing regions. Moreover, Brazil is the third-worst affected country worldwide, after the United States and India, with approximately 15.4 million infections. Dramatic declines in economic activity are expected throughout the LAC region due to the global pandemic. Unfortunately, many LAC countries entered the crisis with low potential economic growth and high levels of inequality, following the region’s recent period of stagnant growth. The 2020 COVID-19 crisis will likely reverse in a short time frame many of the social gains that took decades to materialize in Latin America and the Caribbean. In the past two decades, the region has seen a reduction in the number of people living in poverty by nearly half and an increase in the size of its middle class. Income inequality also decreased, as income growth has been primarily pro-poor in recent years. Despite variations across countries, most have experienced positive welfare gains since the early 2000s. However, the growth deceleration of 2014–2019 coupled with the dramatic fall in activity caused by the COVID-19 crisis will negatively impact living standards and well-being across the region. Poverty projections for 2020 suggest that the number of the poor increased in most LAC countries. Brazil, however, implemented a generous emergency transfer program that benefited almost 67 million people and lifted millions out of poverty. As a result, poverty in the LAC region is expected to decline marginally from 22 percent in 2019 to 21.8 percent in 2020. Had no mitigation measures been implemented, the region may instead have seen 28 million new poor in 2020.
Link to Data Set
Citation
“World Bank. 2021. The Gradual Rise and Rapid Decline of the Middle Class in Latin America and the Caribbean. © World Bank. http://hdl.handle.net/10986/35834 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Economic Mobility and the Rise of the Latin American Middle Class(Washington, DC: World Bank, 2013)After decades of stagnation, the size of Latin America's middle class recently expanded to the point where, for the first time ever, the number of people in poverty is equal to the size of the middle class. This volume investigates the nature, determinants and possible consequences of this remarkable process of social transformation. We propose an original definition of the middle class, tailor-made for Latin America, centered on the concept of economic security and thus a low probability of falling into poverty. Given our definition of the middle class, there are four, not three, classes in Latin America. Sandwiched between the poor and the middle class there lies a large group of people who appear to make ends meet well enough, but do not enjoy the economic security that would be required for membership of the middle class. We call this group the 'vulnerable'. In an almost mechanical sense, these transformations in Latin America reflect both economic growth and declining inequality in over the period. We adopt a measure of mobility that decomposes the 'gainers' and 'losers' in society by social class of each household. The continent has experienced a large amount of churning over the last 15 years, at least 43% of all Latin Americans changed social classes between the mid 1990s and the end of the 2000s. Despite the upward mobility trend, intergenerational mobility, a better proxy for inequality of opportunity, remains stagnant. Educational achievement and attainment remain to be strongly dependent upon parental education levels. Despite the recent growth in pro-poor programs, the middle class has benefited disproportionally from social security transfers and are increasingly opting out from government services. Central to the region's prospects of continued progress will be its ability to harness the new middle class into a new, more inclusive social contract, where the better-off pay their fair share of taxes, and demand improved public services.Publication The Long-Awaited Rise of the Middle Class in Latin America Is Finally Happening(World Bank, Washington, DC, 2014-06)In many developing countries, the supply of skilled workers is likely to continue to be stronger than demand, and this should drive down the skill premium and reduce inequality. Within the limitations of any exercise based on simulations, this paper finds that the recently observed reduction in inequality in Latin America may continue. Building on counterfactual scenarios projecting economic and demographic (including age and education) growth, the paper also highlights that by 2030 the long-awaited rise of the middle class in Latin America will be in full swing, as its share will be 43 percent of the total population, twice the value in 2005. This achievement is not guaranteed, as countries with large initial inequalities will have to achieve very high rates of inclusive growth. At the same time, a larger middle class is likely to exert a stronger influence on international and domestic policy making.Publication Social Gains in the Balance : A Fiscal Policy Challenge for Latin America and the Caribbean(Washington, DC, 2014-02-24)In 2012, the Latin America and the Caribbean (LAC) region continued its successful drive to reduce poverty and build the middle class. The proportion of the region's 600 million people living in extreme poverty, defined in the region as life on less than $2.50 a day, was cut in half between 2003 and 2012 to 12.3 percent. Reflecting the upward mobility out of poverty, households vulnerable to falling back into poverty became the largest group in LAC in 2005, and represent almost 38 percent of the population. However, in the last two years, the share of vulnerable households has started to decline. The middle class, currently 34.3 percent of the population, is growing rapidly and is projected to replace the vulnerable as the largest economic group in LAC by 2016. The Southern Cone region (including Brazil) continued to be the most dynamic region and the main driver of poverty reduction in LAC, while poverty in Central America and Mexico proved more stubborn. About 68 percent of poverty reduction between 2003 and 2012 was driven by economic growth, with the remaining 32 percent arising from decline in inequality. Overall, equality of access to basic childhood goods and services has improved in recent years. Yet access can be further improved, and serious issues remain concerning the quality of those goods and services, particularly in education and housing infrastructure. Moreover, access increases with parental education and income or assets, reflecting low intergenerational mobility in many countries in the region. As with poverty reduction, most of the progress in equality of access since 2000 has come in the Southern Cone and the Andean regions, while many of Central America's countries managed only small improvements. There are also severe differences at the subnational level and between urban and rural areas, highlighting the need to strengthen the capacity of local governments to deliver high quality basic services to all their citizens.Publication Is There Such Thing As Middle Class Values? Class Differences, Values and Political Orientations in Latin America(2011-11-01)Middle class values have long been perceived as drivers of social cohesion and growth. This paper investigates the relation between class (measured by position in the income distribution), values, and political orientations using comparable values surveys for six Latin American countries. The analysis finds that both a continuous measure of income and categorical measures of income-based class are robustly associated with values. Both income and class tend to display a similar association to values and political orientations as education, although differences persist in some important dimensions. Overall, there is no strong evidence of any "middle class particularism": values appear to gradually shift with income, and middle class values are between the ones of poorer and richer classes. If any, the only peculiarity of middle class values is moderation. The analysis also finds changes in values across countries to be of much larger magnitude than the ones dictated by income, education, and individual characteristics, suggesting that individual values vary primarily within bounds dictated by each society.Publication A Vulnerability Approach to the Definition of the Middle Class(2011-12-01)Measurement of the middle class has recently come to the center of policy debate in middle-income countries as they search for the potential engines of growth and good governance. This debate assumes, first, that there is a meaningful definition of class, and second, that thresholds that define relatively homogeneous groups in terms of pre-determined sociological characteristics can be found empirically. This paper aims at proposing a view of the middle class based on vulnerability to poverty. Following this approach the paper exploits panel data to determine the amount of comparable income -- associated with a low probability of falling into poverty -- which could define the lower bound of the middle class. The paper looks at absolute thresholds, challenging the view that people above the poverty line are actually part of the middle class. The estimated lower threshold is used in cross-section surveys to quantify the size and the evolution of middle classes in Chile, Mexico, and Peru over the past two decades. The first relevant feature relates to the fact that the proposed thresholds lie around the 60th percentile of the distribution. The evidence also shows that the middle class has increased significantly in all three countries, suggesting that a higher number of households face lower probabilities of falling into poverty than they did in the 1990s. There is an important group of people, however, which cannot be defined as middle class from this perspective, but are not eligible for poverty programs according to traditional definitions of poverty.
Users also downloaded
Showing related downloaded files
Publication World Development Report 2024(Washington, DC: World Bank, 2024-08-01)Middle-income countries are in a race against time. Many of them have done well since the 1990s to escape low-income levels and eradicate extreme poverty, leading to the perception that the last three decades have been great for development. But the ambition of the more than 100 economies with incomes per capita between US$1,100 and US$14,000 is to reach high-income status within the next generation. When assessed against this goal, their record is discouraging. Since the 1970s, income per capita in the median middle-income country has stagnated at less than a tenth of the US level. With aging populations, growing protectionism, and escalating pressures to speed up the energy transition, today’s middle-income economies face ever more daunting odds. To become advanced economies despite the growing headwinds, they will have to make miracles. Drawing on the development experience and advances in economic analysis since the 1950s, World Development Report 2024 identifies pathways for developing economies to avoid the “middle-income trap.” It points to the need for not one but two transitions for those at the middle-income level: the first from investment to infusion and the second from infusion to innovation. Governments in lower-middle-income countries must drop the habit of repeating the same investment-driven strategies and work instead to infuse modern technologies and successful business processes from around the world into their economies. This requires reshaping large swaths of those economies into globally competitive suppliers of goods and services. Upper-middle-income countries that have mastered infusion can accelerate the shift to innovation—not just borrowing ideas from the global frontiers of technology but also beginning to push the frontiers outward. This requires restructuring enterprise, work, and energy use once again, with an even greater emphasis on economic freedom, social mobility, and political contestability. Neither transition is automatic. The handful of economies that made speedy transitions from middle- to high-income status have encouraged enterprise by disciplining powerful incumbents, developed talent by rewarding merit, and capitalized on crises to alter policies and institutions that no longer suit the purposes they were once designed to serve. Today’s middle-income countries will have to do the same.Publication Shifting Gears: The Private Sector as an Engine of Growth in the Middle East and North Africa(Washington, DC: World Bank, 2025-04-23)The Middle East and North Africa (MENA) region is estimated to have grown at a modest rate of 1.9 percent in 2024 and is expected to grow moderately at 2.6 percent in 2025. This is against a backdrop of increased global uncertainty, particularly in trade policy. The region is far from the frontier in standards of living, largely due to low productivity. This issue of the MENA Economic Update sheds light on a critical engine of productivity growth: the private sector. Businesses create jobs, boost livelihoods, and serve as a bastion of innovation in the economy. The MENA private sector, however, is not dynamic and is ill prepared to absorb shocks. To boost the performance of the private sector, governments in the region may need to rethink their role in engaging with markets including improving competition, the business environment, and the availability of data. Additionally, private sector businesses in the region can increase performance through better management practices and harnessing untapped talent in the region.Publication Digital Opportunities in African Businesses(Washington, DC: World Bank, 2024-05-16)Adoption of digital technologies is widely acknowledged to boost productivity and employment, stimulate investment, and promote growth and development. Africa has already benefited from a rapid diffusion of information and communications technology, characterized by the widespread adoption of mobile phones. However, access to and use of digital technology among firms is uneven in the region, varying not just among countries but also within them. Consequently, African businesses may not be reaping the full potential benefits offered by ongoing improvements in digital infrastructure. Using rich datasets, “Digital Opportunities in African Businesses” offers a new understanding of the region’s incomplete digitalization—namely, shortfalls in the adoption and effective use of digital technology by firms to perform productive tasks. The research presented here also highlights the challenges in addressing incomplete digitalization, finding that the cost of machinery, equipment, and software, as well as the cost of connectivity to the internet, is significantly more expensive in Africa than elsewhere. “Digital Opportunities in African Businesses” outlines ways in which the private sector, with support from policy makers, international institutions, and regulators, can help bring down these costs, stimulating more widespread digitalization of the region’s firms, thereby boosting productivity and, by extension, economic development. This book will be relevant to anyone with an interest in furthering digitalization across Africa.Publication World Bank Annual Report 2024(Washington, DC: World Bank, 2024-10-25)This annual report, which covers the period from July 1, 2023, to June 30, 2024, has been prepared by the Executive Directors of both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—collectively known as the World Bank—in accordance with the respective bylaws of the two institutions. Ajay Banga, President of the World Bank Group and Chairman of the Board of Executive Directors, has submitted this report, together with the accompanying administrative budgets and audited financial statements, to the Board of Governors.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.