The Moorish Wanderer

The Middle Class, The Median Class: Growth Did Not Benefit Everyone

And we are back with the Median/Middle class tantrum. I sketched in a hasty post describing the “Middle Class Rip-off” perhaps It would be nicer -and more transparent- to describe the process by which I reached the conclusion our Median Class has lagged behind growth and has actually lost purchasing power over the last decade or so.

The Top 10% skimmed a large chunk off National Income growth in the past 12 years

The data is public and easily accessible on the World Bank’s Open Data website, more precisely on Morocco’s matrix of indicators with the following references :

SI.DST.02ND.20

SI.DST.03RD.20

SI.DST.04TH.20

SI.DST.05TH.20

SI.DST.10TH.10

SI.DST.FRST.10

SI.DST.FRST.20

NY.GNP.MKTP.CN

(All of which are related to Income Share per Decile and GNI in Current Local Currency).

For more up-to-date data (2007 and onwards) HCP Annual Social Indicators for 2009 was processed so as to get a complete picture of how incomes evolved over time. Since the data is computed in terms of decile/quintile households, I use the HCP table data 1960-2030 and make up for the missing years by computing an average proxy for demographic growth. When all these numbers are crunched together, we get that the average GNI growth between 1999 and 2010 was 6% in current terms. This means the Gross National Income doubled in 12years; Good news for the wealthiest 10%, their income quadrupled to peak at an average of MAD 430,000.

Now let us put things into context: the Median families -to my recollection the best available proxy for Middle Class households- have increased their income over the last 12 years. This is good news and should be noted. But on the other hand, they have lagged behind the artificially constructed average household; One explanation might be that averages are inherently biased toward individual occurrences scoring high values; there is a weight favouring those way more wealthy than the others that increases the average, as well as the measure of dispersion around it.

But increasing the average, or for the Median household to increase their own income is not a goal on its own. Indeed, every household has increased their income since 1999, but what about inequality? The ratio between the top 20% and bottom 20% went up from 1:7 in 1999, to 1:9 in 2010. In other terms, for every additional dirham the bottom 20% made between 1999 and 2010, the wealthiest 20% made 20. And the median household made 3 during the same period. If anything, the observed growth for the whole decade has benefited more to a tiny 20% minority (if not less) than it did to the rest of the population. Eliminating poverty is good; squeezing inequality is even better.

A Household from the top 20% has a annual income higher than that of the 80% households combined - in 2010

On the other hand, the Median-income households have lost pace with GNI growth both per capita and aggregate levels: it their income grown at an average of 2.63% in current terms between 1999 and 2010, while GNI per capita increased 2.9% on average over the same period. By contrast, the top 20% scored an annual increase of 4.8% -and since the top 10% increased their own income a 5.3% a year, the Super-Über-rich must have made a lot more.

But this is beside the point. We focus on the Median Class, who increased their wealth but did so at a level below the nationwide mean, and certainly lagged way behind the wealthiest. In relative terms, they have lost some of their purchasing power because of this; their social standing, for one.There is a social cost to the marginalization of the middle class: they increased their wealth, to be sure, but they are stuck and could not increase their income and wealth. It is as if a glass ceiling has been put above the Middle Class, an unbreakable and unseen obstacle that prevents hard-working Moroccan households from achieving a higher status. And there goes the argument: if the middle class cannot feel empowered, and their status envied or at least considered to be the norm, then the very seeds of class warfare are sown: a small, effete nucleus has reached upon and confiscated an increasing share of GNI: the 10% wealthiest concentrated National Income from 31% to 38%, while the Median Class saw their own share decrease from 15% to 13.2% of GNI between 1999 and 2010.

In terms of real purchasing power, the effect of inflation has been crippling: considering Consumer Price Index with base year set at 1999, prices have increased 40%, or an overall annual inflation 3.1% rate -CPI inflation is preferred to GDP deflator because it focuses on items that affect consumption and real incomes. Also, since comparison takes place on the 1999-2010 period, the 2005 CPI is re-computed so as to fit the base year.

So unless some household have increased their nominal income by a higher percentage in the meantime, they would have lost some of their purchasing power. And unfortunately, not everyone have increased their income by more than 40%: Over the last 12 years, the Median class have lost an average of 0.5% of their nominal income to inflation. In monetary terms, this means since 1999 the Middle Class have lost, on average, inflation-discounted value of MAD 1,201, that is MAD 14,400. This number is higher than what I posted earlier on because between 2007 and 2010, the income share decreased 1.3 basis points. The accrued effect of inflation takes up the loss in real income to the level mentioned above; so it goes from 11,000 in 2007 to 14,400 in 2010.

The only people pulling it off are the top 20%; net of inflation, their income increased 31% since 1999, and at annual rate of 2.3%. The top 10% did even better: 42% increase since 1999 net of inflation. That’s a MAD 140,000, almost double the gross returns for the remaining 90%.

The Median class, who saw their income go down while GDP and GNI went up during the last decade are only a prelude, a preview of what other classes are ailing from; they are both representatives of the increasing inequalities we live in our society and the key to bring together all classes around a granite-solid middle class that brings affluence to the economy. And for political parties to gain support (and votes) their policies should be designed toward the median, not the mean. Otherwise, their manifestos become meaningless.

The Middle Class Rip Off

Posted in Moroccan Politics & Economics, Moroccanology, Morocco, Read & Heard, The Wanderer by Zouhair ABH on October 17, 2011

Much has been made of the Feb20 demonstrations, mainly as a sign of middle class unrest and discontent with perceived unfair distribution of wealth and political power. While it is understood only too many citizens have been excluded from, or ruled themselves out of,political representation – because of the generally corrupt and inadequate partisan political apparatus, the same argument cannot be made as easily about economic retribution;

The middle class in Morocco is both a political and economic maze to the observer, remain a tricky and elusive set of individuals, and any proposed criterion to determine the broad characteristics of such population is bound to trigger gainsay and recriminations for its arbitrary, almost deterministic approach. And yet, these are the people that may well hold the key to appease social and economic resentment, drive forward both the political process and the economic transition away from its current quagmire and into genuine prosperity.

The middle income as we define it.

My proposed definition of “Middle Class” does not stray from HCP established nomenclature; first because my own back-of-the-envelope computations tend to be vindicated by HCP findings, and second because the less controversial course is to settle for the Median Income as an indicator of the economic characteristics. The modus operandi is pretty straightforward: households are ranked per income, and then broken down into uniform quintile group (that is, per 20% sub-groups). The median quintile is therefore the third 20% -as it leaves as many households on its left as it does on its right. Then, we consider each quintile’s respective share in gross national income (GNI). Unfortunately, consistency isn’t HCP forte, and the IMF world data fields only 5 dates for the income distribution, further completed with some punctual HCP late figures on the matter: 1985, 1991, 1999, 2001 and 2007.

As we set in to track the median national income between 1999 and 2007, the findings point out a marked decrease in median share, down from 14.97% in 1999, to 14.54% in 2007, and the trend is to be confirmed by subsequent surveys. This dent in median wealth (-2.87%) almost mirrors the average GNI per capita growth over the same period (+2.83%) In simple words, the median income share has gone down at almost the same rate GNI per capita has gone up. And it seems all other quintiles but one have experienced similar trends. The only quintile households with a healthy 3.41% improvement were the top 20%, that is, those earning more than MAD 207,000 per annum (2007 figures).

But let us dig deeper in the “Middle Class malaise”; while it is understood their share in income has fell over time (a tale-telling sign of income concentration in this country) their real income has also gone down. The stated implication is not necessarily true: the share pie per person has grown some 3% a year, so even though it has grown smaller with respect to the whole pie, it may have grown in absolute terms nonetheless. But sadly for the Middle Class, that did not happen; quite the opposite.

But what about real income?

Between 1999 and 2007, median income per household has grown 1.48% in nominal terms. However, when adjusted for average (CPI) inflation,the real income has been steadily decreasing at 0.18%. This means the median households have accumulated a real loss in purchasing power of MAD 13,000 over the considered period. What does this tell us about all these economic policies carried ever since 1999?

And it is not like the median households are the only ones who bore the brunt of economic inequity; again, the top 20% are the only ones who actually improved their real income by MAD 11,000 overtime.The bottom 20% have increased their real income though: an accumulated MAD 51 over the considered 8 years – the top 20% improved their real income 215 times more than the bottom 20%. This is worse than a zero-sum game, it is, quite simply, a game heavily skewed towards the affluent, and public redistributive policies (i.e. fiscal policies) have done nothing to allay the inequity; it has only made it worse.

What holds in 2007 holds equally true for 2011 (even by the most optimistic projections of a stabilized income share with respect to the 2008 survey) as the median 20% saw their income share fall further to 13.2%.

... The Middle Class have been screwed up. In real terms.

A country with a weak middle class who cannot enjoy the proper benefits of growth, cannot sustain itself without serious risks of social unrest and discontent. What is worse, these subsidies the government has been so generously putting on the table only beat the inequity further in, as they benefit those with the highest absolute consumption levels.

Now that these numbers have put in perspective the ailing of our Middle Class, the guileless observer would now understand why a deep, structural change within our institutions and the economics of wealth redistribution need to be thoroughly reviewed.

And yes, Middle Class IS radical.