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Do economic recessions “squeeze the middle class”?

Alberto Batinti and Joan Costa‐Font
Authors registered in the RePEc Author Service: Joan Costa-i-Font

Economics and Politics, 2020, vol. 32, issue 3, 335-355

Abstract: We examine whether economic downturns are linked to the distribution of population income giving rise to an observed “middle class squeeze.” We test this hypothesis using a novel and unique dataset using the Luxembourg Income Study (LIS) and allowing us to construct alternative definitions of middle class, such as income‐based measures, including labor income based, and perceived measures from the Integrated Values Study (IVS). Our findings suggest that, although recessions are not consistently correlated with middle class squeeze overall, the more unanticipated shocks resulting from the Great Recession show consistently through several definitions, a negative and robust conditional correlation. Furthermore, we find that recessions are positively correlated with the share of the population that regards itself as “middle class.” Estimates are heterogeneous to the baseline unemployment at the time of a recession, country spending on social protection, to middle class measures and definitions.

Date: 2020
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Related works:
Working Paper: Do economic recessions ‘squeeze the middle-class’? (2019) Downloads
Working Paper: Do Economic Recessions ‘Squeeze the Middle-Class’? (2019) Downloads
Working Paper: Do Economic Recessions ‘Squeeze the Middle-Class’? (2017) Downloads
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