A report published by the Organization for Economic Cooperation and Development (OECD) in April 2019, Under Pressure: The Squeezed Middle Class, [1] suggests that governments need to do more to support middle-class households who are struggling to maintain their economic weight and lifestyles as their stagnating incomes fail to keep up with the rising costs of housing and education.
This new analysis “delivers a bleak picture and a call for action,” according to OECD Chief of Staff and Sherpa Gabriela Ramos.
As the middle class shrinks in most OECD countries, it has become more difficult for younger generations to make it to the middle class (defined as people earning between 75% and 200% of the median national income). While almost 70% of baby boomers were part of middle-income households in their twenties, only 60% of millennials are today. Some reasons for this include:
- The cost of a middle-class lifestyle has increased faster than inflation. Housing prices, which are the largest single spending item for middle-income households, have been growing three times faster than household median income over the last two decades.
- More than one-in-five middle-income households spends more than they earn and over-indebtedness is higher for them than for both low-income and high-income households.
- Labor market prospects are increasingly uncertain: one in six middle-income workers have jobs that are at high risk of automation, compared to one in five low-income and one in ten high-income workers.
The OECD’s comprehensive action plan has the following suggestions for governments of OECD countries:
- Improve access to high-quality public services and ensure better social protection coverage.
- Encourage the supply of affordable housing by enacting targeted policies
- Provide targeted grants, financial support for loans and tax relief for home buyers
- Help overburdened households get back on track with mortgage relief
- Invest more in vocational education and training systems
- Extend social insurance and collective bargaining coverage for non-standard workers, (part-time or temporary employees or self-employed).
Finally, to foster fairness of the socioeconomic system, policymakers need to consider shifting the tax burden from labor income to income from capital and capital gains, property and inheritance, as well as making income taxes more progressive and fair.
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