It’s time to stop labeling millions of people in the developing world who have escaped $2 day poverty as “middle class”. The Asian Development Bank does it, and the African Development Bank does it. Abhijit Banerjee and Esther Duflo did it here and Martin Ravallion here.
People do not jump to a middle class way of life at $2.01 a day. The $2 a day international “line” of moderate poverty matters only in the abstract, not in the lives of people like Muljoko in Indonesia living on $7 a day or Mohamed Bouazizi in Tunisia on about $5 day when he immolated himself in late 2010, setting off the Arab Spring. People living on $3 a day, median income in the developing world, and even Muljoko at $7 a day, are not enjoying the economic security we associate with “middle class” in advanced economies.
This week the Financial Times did a good thing. It highlighted a huge new group in developing countries – as much as 40 percent of developing country populations over the next several decades -- that deserves its own identity: the fragile middle on a slippery ladder (where you can read about Muljoko) to a better life. We call them the strugglers in this paper with Nora Lustig and Christian Meyer and show that they are as a group at risk of becoming the "new poor” underclass of Latin America, because even with equally shared growth across all parts of the income distribution, absolute gains in the income of the true, secure middle class are greater than gains for the poor and strugglers, and leave the latter further and further behind.