Economic crisis and social classes: everyone loses out, especially poorer people
- 1In real terms, between 2007 and 2013, the average income of the poorest 10% fell by approximately one third, while that of the richest 10% experienced falls that barely exceeded 10%.
- 2The income share of the richest households (decile 10) has risen from being 9.5 times greater than that of the poorest segment (decile 1) to 13.7 times, due mainly to the fall in income of the lower classes.
- 3Approximately 3 out of every 4 people who in 2008 belonged to the lowest income groups (deciles 1 and 2) remained in the same position after the toughest phase of the crisis.
- 4The crisis has not introduced major changes in the way the cake is shared out, but it has helped to crystallise situations of disadvantage and for this reason has limited the options of progressing for the poorest people.
This article analyses the changes in the positions of the different economic classes in Spain since the period prior to the start of the crisis. Its main objective is to assess to what extent there have been movements in the different classes’ global positions. The results point to stability with respect to the situation prior to the crisis as the most prominent trait. Although there is a growing distance between the incomes of the richest and the poorest classes, we do not find evidence that sustains the idea of a general downclassing of the middle class occurring over the course of the crisis, it being society’s poorer strata that are most vulnerable to its impact.
Polarisation between the social classes, aggravated by the crisis and fuelled by globalisation, has in recent times become an issue of growing concern because of its possible effects on economic growth, to the extent that this question occupies now a prominent place on the political agenda at the highest level (European Commission, 2010; OECD, 2015).
From a more sociological perspective, the focus is frequently centred on the possible loss of opportunities for future generations, with growing difficulty for reaching the standards of living of their parents and grandparents. This threatens to become a process of downward social mobility from which it is difficult to return (Estefanía 2016, Gaggi and Narduzzi 2006, Galbraith 2013). To what point this loss of expectations can be translated into a breakdown of confidence in the functioning of the democratic system and its moral fundaments is an open question. For some authors, this is one of the great challenges for the western liberal democracies (Fukuyama, 2012), to which the recent appearance of movements and parties of a populist type would not be alien.
The case of Spain is especially interesting because it is one of the countries where the social and economic impact of the crisis has been greatest. In the lines that follow, we tackle the question of the economic position of the middle class over the course of this last decade in Spain from different angles. Firstly, we examine the evolution of the average income for the different economic classes with the aim of evaluating the real deterioration suffered by each. Secondly, we consider the eventual changes in the sharing out of the “cake” between the different income classes and their implications from the viewpoint of inequality. Finally, we analyse the mobility pathways between the different classes, a crucial question to be able to determine the mobility processes that are taking place now.
2. Does everyone experience the crisis in the same way?
The first question that we will consider is how the impact of the crisis has affected people according to their different earning levels, whatever their origin is, i.e, according to their income.
Table 1 shows the evolution of the average income for the different income decile groups (or groups of 10% of the population) in real terms, discounting the effect of inflation. In the same way that during the years prior to the crisis all the groups increased their average income, after the crisis a generalised impoverishment of the different segments of the population took place. Only decile 1, which groups together the poorest 10%, breaks with this pattern, since it is the only group presenting a decline in income even before the crisis.
Average incomes are per person (unit of consumption), but are obtained, for each household, taking into account its composition, to integrate the effect of economies of scale into the income. The rental price of a dwelling, for example, is the same whether one or four people live in it. The average income is calculated by dividing the total household income by the number of units of consumption. And the number of consumption units is calculated, in turn, by giving a weight of 1 to the first adult, a weight of 0.5 to the other adults and a weight of 0.3 to inhabitants under 14 years of age. Once the income per household unit of consumption is calculated, it is assigned equally to each one of its members.
Everyone, rich and poor, became poorer with the crisis, but were some hit harder than others? When looking at absolute amounts, the largest variations logically arise in the higher part of income distribution, among the richer classes, and are smaller in the lower part, among the poorest classes. This obviously does not mean that the poorest decile has dodged the crisis better, but that the fall in average income in absolute terms was greater in the higher part of the distribution (4,708 euros of loss in decile 10 against 1,151 in decile 1). To the contrary of what is normally affirmed, the crisis has not made any exceptions for the rich (Ariño, 2016).
If we now observe the population segment that occupies the central 60% of income distribution (deciles 3 to 8), habitually defined as the middle class, the range of variation in their income is more limited: it varies between 2,194 euros of decline in decile 3 and 3,342 in decile 8. However, the diagnosis of being generally worse off is repeated: the average income values corresponding to each decile fell below those that corresponded to the decile immediately below six years earlier.
Let’s now examine the change in relative terms, taking 2007 as a reference point. The greatest losses occurred in decile 1 (the poorest), which saw its income fall by approximately a third between 2007 and 2013, while in the highest decile income fell by only 12.6%. For their part, the middle classes also saw their income fall to a lesser extent as we move towards the upper limit: the richer they are, the smaller their relative loss has been.
Within this group, falls range between 23.1% and 16.2% for the deciles with the smallest and largest incomes (deciles 3 and 8 respectively, in table 1). Therefore, not all the classes lost equally, and the poorest classes are the ones that lost most proportionally.
To sum up, the crisis has caused a decline in disposable income in all households, but the poorer the household the more pronounced the loss.
3. Has the relative position of the different income classes changed?
Leaving aside the changes in income volume, we now ask ourselves about what we could call the “sharing of the cake”. If the distribution were completely equalitarian, each decile, in other words each 10% of the population, would get 10% of the total income, a situation that is far removed from reality. The important question is whether this distribution has varied over the course of the last decade and, especially, since the start of the crisis.
As illustrated by graph 2, changes in income share corresponding to each decile have been practically inexistent over the course of the last decade; only slight variations are appreciated in the end deciles, i.e. those at the bottom and the top.
Even if we consider aggregating various deciles to obtain larger income groups, the variations are still not significant: the richest 20%, who in 2007 accounted for some 39.0% of the total income, had increased by 1.2 percentage points in 2013. At the other extreme, the poorest 20% experienced a loss in their income share of just less than one point in the same period, with a fall from 7.1% in 2007 to 6.3% in 2013. Even though it is true that the percentage of income corresponding to the highest groups increases slightly in this period, this increase is not due, as has been seen in the previous section, to an increase in income in absolute terms.
This variation of approximately one percentage point at both extremes logically has a greater weight among the poorest people because they start off from a lower income share. Thus, a fall of around 1%, as occurs with the poorest 20%, represents a decrease of 11.3% in their share of total disposable income, while a gain of 1.2 points, as occurs with the richest 20%, represents an increase of 3.1%.
It is the extremes, therefore, that show some change in their share of income.
In short, we can say that the recent evolution of inequality, when total income is considered, is due, above all, to the downward variations among the poorest class and not to the enrichment of the wealthiest.
This point is illustrated in graph 3. This graph connects the richest 10% (decile 10) with decile 5. Between 2004 and 2013, the homes in decile 10 enjoyed an income around three times higher than that of homes in decile 5, and this relationship remained very stable, with small variations, throughout these years. In contrast, the distance between the end deciles increased continually over the course of the last decade, and particularly from 2007. This increase is entirely due to the losses of the poorest groups. It is these losses that are responsible for the increase in the gap between rich and poor, and not the increase in the income of the richest groups since, as we have seen in table 1, they also experienced absolute loss of income, although it was much lower if considered proportionally.
This conclusion is important as it situates Spain far from the polarising model according to which the rich get richer at the cost of the poor; a pattern frequently assumed as a part of the general tendency in the majority of developed countries. The data do not support either the hypothesis of the economic decline of the middle class, nor that of the enrichment of the wealthiest at their expense. The only evident point is that, both in relative and absolute terms, the lowest segments of income distribution were those that most suffered the impact of the crisis.
4. Mobility across the distribution of income: has the social elevator drawn to a halt?
A significant question when assessing the possible economic, social and even political implications of the scenario described above is to know to what point individuals move between the different income classes over time. The higher the possibility of individuals being anchored to their starting positions, the fewer the opportunities for social mobility and the greater the danger that situations of disadvantage will fester and become chronic.
Graph 4 shows how the different deciles have evolved over the course of the period that elapsed between 2008 and 2011, which corresponds approximately to the first and most acute phase of the crisis.
In our analysis, the starting point is taken as the income decile group that individuals were in at the start of the period and the endpoint, the three major income groups defined previously (rich, poor and middle class). The possibility of remaining in the same decile as that of origin is classed as immobility. Someone who, for example, was in decile 1 in 2008 will be classed as “immobile” if they are still in the same decile in 2011; “poor” if they move to decile 2; “middle class if they experienced upward mobility to any of the deciles between 3 and 8; and “rich” if they reach one of the two top deciles.
Thus, starting with the part to the right of the distribution in graph 4, some 65.5% of the individuals that began in decile 10 remained in the same place three years later and only 13.2% had experienced short downward mobility to decile 9, i.e., they stayed in the rich classes. Thus, approximately 3 out of 4 individuals (78.8%) belonging to the richest 10% at the start of the crisis continued to be rich in 2011, while some 20% descended to the middle class, and an irrelevant 1.2% ended in the lowest deciles, falling into poverty.
A somewhat similar pattern occurs at the opposite end of the scale with decile 1, the poorest. However, in this case the percentage is lower than those that remain in the same decile (52.9%) and appreciably higher is that of those who experience short upward mobility towards decile 2 (23.1%); all in all, some 76% remain poor at the end of the period.
The percentage of those moving towards the middle class reaches 21.7%, and a small 2.3% manage to climb up to deciles 9 and 10, becoming rich in accordance with our classification.
Things are quite different when we move to decile 2. In this range, immobility, i.e., staying in the same decile, accounts for 35.3%, of the people. The majority of those who change decile go to ranges within the middle class: 46.4% of people in decile 2 move to another decile between decile 3 and decile 8. In contrast, 17.1% of those who belong to decile 2 descend to the category immediately below. The percentage reaching the highest two deciles is insignificant. The balance can be seen as a bottle that is half full or half empty: one in every 2 people in decile 2 emerged from poverty following the first period of the crisis; the rest remained there, sometimes in an even worse situation.
As for the people starting off in decile 3, we find that the main trajectory is upward mobility towards other positions within the same middle class (43.8%), with the percentage of those reaching the highest two deciles being negligible. It can therefore be observed that the deciles at the lower end of the middle classes are the most vulnerable, with approximately 26% of those on the poverty line in 2008 (decile 3) becoming poor, while the probability of upward mobility towards the richer classes rises to 28% in the deciles that make up the upper limit of the middle class.
When considering the total of Spanish income, according to our analyses, it appears evident that, above all in relative terms, the lowest segments of income distribution are those that most suffered the impact of the crisis.
All the classes experienced a loss of income in real terms from the start of the crisis and, in absolute terms, the losses were greater at the top end of income distribution, among the rich, although obviously these losses are ultimately diluted when the starting point is considered.
Moreover, and to the contrary of what is usually thought, the crisis has not represented any important change in the relative position of the different income classes: the “share of the cake” has remained unaltered in recent years despite the serious economic crisis and the fall in employment in Spain. Fair or unfair, the crisis did not introduce significant changes.
The main changes in income distribution since the start of the crisis can be summarised as approximately one percentage point more of income for the richest 20% and one point less for the poorest 20%. Thus, we can say that the recent increase in inequality in Spain, rather than being due to an upsurge among the rich, is due to declining positions among the lower income strata. As we pointed out previously, this conclusion is important, because it breaks with the pattern of growing polarisation that is usually extrapolated from the set of developed western countries.
It is possible that Spain is an anomaly in this sense, or it may be that this is the case of the English-speaking countries, frequently taken as a reference point when establishing international comparisons.
Finally, we have observed that immobility has been the norm at both ends of income distribution: the probability of remaining in their starting position during the first period of the crisis was higher for people that started off in the higher deciles than for those that did so in the lower ones. Even so, an appreciable percentage of those that in 2008 were in a situation of poverty had moved up to the middle class by 2011. Moreover, the central deciles, belonging to the middle class, were the most mobile, with the probability of ascending to higher positions being greater the higher their starting positions, while the lower income threshold turned out to be the most vulnerable to the impact of the crisis.
Therefore, the decline in people’s wealth to the point of their being classifiable as poor has not been a generalised phenomenon, but has fundamentally affected those who were already near the poverty threshold. Perhaps it is on them that the social and political debate should be centred.
ARIÑO, A. (2016): La secesión de los ricos, Barcelona: Galaxia Gutenberg.
EUROPEAN COMMISSION (2010): Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth, Final Communication from the Commission, 3.3.2010, COM(2010) 2020 final.
ESTEFANÍA, J. (2016): Abuelo, ¿cómo habéis consentido esto?, Barcelona: Planeta.
FUKUYAMA, F. (2012): "The future of history. Can liberal democracy survive the decline of the?middle class?", Foreign Affairs, 91(1).
GAGGI, M., y E. NARDUZZI (2006): El fin de la clase media y la sociedad de bajo coste, Madrid: Lengua de Trapo.
GALBRAITH, J.K. (2013): "El destino de la clase media", La Vanguardia Dossier, El mundo de la clase media, 47.
OECD (2015): In it together: why less inequality benefits all, París: OECD Publishing.
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