Do Economic Recessions ‘Squeeze the Middle-Class’?

By: Alberto BatintiJoan Costa-Font
Abstract: We examine whether economic downturns reshape the distribution of population income giving rise to a “middle-class squeeze.” We test this hypothesis using alternative definitions of middle-class, such as income-based measures from the Luxembourg Income Study (LIS), and perceived measures from the Integrated Values Study (IVS). Our findings suggest that, although recessions do not produce a middle-class squeeze overall, the unanticipated shocks resulting from the Great Recession did. Furthermore, we find that recessions increase 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.
JEL: F22 I30 J64
URL: http://d.repec.org/n?u=RePEc:lis:liswps:757&r=ltv
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