Friday, 20 October 2017

The Odyssey of the Greek Middle Class

It is said that a country's middle class is the bedrock of its democracy. Hence, saying that its prosperity should be considered tantamount by anyone who believes that democracy is the optimum form of government, cannot be dismissed as  an exaggeration. But what happens in a country such as Greece where household incomes have been clobbered by a depression that saw GDP decrease by as much as 28% (peak-to-trough)? How did the Greek middle class fare throughout the depression?

First, one has to define middle class. ELSTAT's household budgets survey divides households into eight income classes. My intention is to deem the lower two income classes (0 - 1100 EUR) as the "lower class", the middle four ( 1101 - 2800 EUR) as the "middle class" and the two highest (>2801) as the "upper class".

So, what happened to the Greek middle class? Did it suffer the same fate that Greek GDP did?

Well, as counter-intuitive as it is, it actually didn't dwindle. On the contrary, it grew. In 2016 the aforementioned definition of Middle Class accounted for ~54% of Greek households compared to 49,5% in 2008.

source: ELSTAT, own calculations

Of course this can be attributed in its entirety to the fact that what was defined here as the "Upper Class" lost 2/3 of its pre-depression mass. Most likely the households that left the two upmost income brackets migrated to those "right" below (although one can hear plenty of anecdotal evidence of much more extreme moves across brackets). At the same time, the "Lower Class" doubled in size so that in 2016 it accounted for ~33% of Greek households compared to ~15% in 2008.

The next graph charts the change in the number of households in each income class.

source: ELSTAT, own calculations
If we combine data from this chart with those from the next one (which depicts what chunk of middle class' total, households belonging to each of its four income classes account for) we can see that contrary to 2008 when the lower brackets represented about 45% of total they now correspond to a bit more than 55%. So, despite growing slightly in size, it becomes evident that Greece's middle class has, on a whole, become poorer. Now that is definitely more intuitive.

source: ELSTAT, own calculations
All in all, contrary to what someone would expect Greece's middle class didn't dwindle in number but it certainly hollowed out. Despite the move downwards already in place, insecurity and low morale due to the threat of even further downward mobility are hanging above Greek Middle Class' collective head like Damocles' sword. Here's to hoping that Greek middle class will hold.

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