Measures of Polarization and Conceptualization of Middle Class

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1 * Measures of Polarization and Conceptualization of Middle Class The EGR strategy generates brackets of income classes of the income distribution observed in practice. The brackets chosen were the ones which better distinguish the 3 groups in a sense that they select the lowest possible differences inside them (identification) and on the other hand maximize the differences between groups (alienation). We calculated the brackets of income for the case of 3 segments (AB, C e DE). 1

2 Explanatory Power of Economic Classes Segmentation: EGR x Equal Sizes CORTES E MEDIDAS DE DESIGUALDADE - ÍNDICE DE THEIL % da desigualdade explicada pelo ENTRE segmentos de renda CLASSES ECONOMICAS CPS/FGV GRUPOS % IGUAIS (1/3) PME % 59.34% PNAD % 59.91% PNAD % 57.96% POF % 59.29% Fonte: CPS/FGV a partir dos microdados do IBGE T T e K h 1 Y T h h Te / T is the Contribution of economic classes brackets to inequality Economic Classes Defined by Total Household Income (calculated originally in per capita terms) (Monthly R$) Economic Classes Lower Limit Upper Limit Class E Class D Class C Class B Class A Source: PNAD/IBGE and POF/IBGE microdata * R$ September 2016 prices <-New Middle Class <-Traditional Middle Class (A+B) More US style Self-perceptions on Class in 2014 how does Brazilians ranked thenselves in terms of economic class, ranging from extremely poor to the elite, passing by people who call themselves vulnerable and several middle class bands (low, medium and high). The self-perception of the whole middle class (share in ABC classes) by Brazilians is per cent, higher than the per cent in PNAD for

3 Global income distributions in 1988 (Twin Peaks) and 2011 (less polarized) Figure 3. Global income dstribution in 1988 and 2011 density Emerging global middle class between $3 and $ log of annual PPP real income twoway (kdensity loginc_11_11 [w=popu] if loginc_11_11>2 & year==1988, bwidth(0.14) title("figure 3. Global income dstribution in 1988 and 2011")) (kdensity loginc_11_11 [w=popu] if loginc_11_11>2 & year==2011, bwidth(0.2)), legend(off) xtitle(log of annual PPP real income) ytitle(density) text( "1988") text( "2011") xlabel(2.477"300" 3"1000" 3.477"3000" 4"10000" 4.699"50000", Branko Milanovic labsize(small) angle(90)) Using Branko\Income_inequality\final11\combine88_08_11_new.dta Global Income Distribution 2011 (2005 international dollars) China is Bridging the Twin Peaks Source: Lakner and Milanovic

4 Acquisition of Goods and Services Acquired this good or service in the last 3 years (%)? 40% 38.41% 30% 20% 21.23% 24.5% 10% 2.15% 6.34% 8.39% 8.59% 8.74% 11.89% 12.44% 0% Source: SECOM Quarterly Public Perception Poll July/2014 1st Acquisition of Goods and Services 1st time acquiring goods or services: Among those who purchased it in the last 3 years 80% 70% Idea of the New Middle Class 60% 50% 46.19% 47.67% 49.49% 33.61% 35.29% 37.21% 38.88% 40% 30% 20% 10% 0% 74.80% 64.57% 65.48% Source: SAE designed questions in SECOM Quarterly Public Perception Poll July/2014 *only takes into account the ones who adquired the good or service in the last 3 years 4

5 24/05/2018 % in Class ABC - By Municipalities % Classe ABC 8,9-19,6 19,6-30,3 30,3-40,9 40,9-51,6 51,6-62,2 62,2-72,9 72,9-83,5 83,5-94,2 Source: FGV Social/CPS from Demographic Census 2010/IBGE % Access to Motorcycles % Access to Cars Acesso Carros Acesso Motos Source: FGV Social/CPS from Demographic Census 2010/IBGE 5

6 24/05/2018 % in Class AB % Classe AB 0,3-5,6 5,6-10,9 10,9-16,2 16,2-21,6 21,6-26,9 26,9-32,2 32,2-37,6 37,6-42,9 Source: FGV Social/CPS from Demographic Census 2010/IBGE Home Access to the Internet Acesso Internet Source: FGV Social/CPS from Demographic Census 2010/IBGE 6

7 % in AB Classes 24/05/2018 Retratos Locais - % Classe A % Classe A 0-3,8 3,8-7,7 7,7-11,5 11,5-15,3 15,3-19,2 19, ,8 26,8-30,7 Source: FGV Social/CPS from Demographic Census 2010/IBGE % in AB Classes X Mean Per Capita Household Income (including the ones with no income) Mean Per Capita Household Income Source: FGV Social/CPS from Demographic Census 2010/IBGE 7

8 A1 Class Map Brazilian Municipalities Rank Municipality State A1 % 1 Niterói RJ 17.61% 2 Santana de Parnaíba SP % 3 Vitória ES 15.06% 4 Florianópolis SC 14.90% 5 São Caetano do Sul SP 14.75% 6 Brasília DF 14.01% 7 Porto Alegre RS 13.24% 8 Nova Lima MG 11.64% 9 Santos SP 11.13% 10 Balneário Camboriú SC 10.76% 11 Belo Horizonte MG 10.71% 12 Curitiba PR 10.47% 13 Vinhedo SP 10.46% 14 Presidente Castello Branco Source: FGV Social/CPS from Demographic Census 2010/IBGE SC 10.38% 15 Rio Fortuna SC 10.37% 16 Rio de Janeiro RJ 10.27% 17 Valinhos SP 10.24% 18 São Paulo SP 9.46% 19 Campinas SP 9.24% 20 Holambra SP 9.13% 21 Águas de São Pedro SP 8.83% A1 Class Map São Paulo Municipality Districts Rank District from São Paulo A1 % 1 Moema 61% 2 Jardim Paulista 54% 3 Itaim Bibi 51% 4 Alto de Pinheiros 49% 5 Perdizes 49% 6 Vila Mariana 48% 7 Pinheiros 46% 8 Morumbi 45% 9 Consolação 44% 10 Campo Belo 42% 11 Santo Amaro 39% 12 Vila Leopoldina 37% 13 Saúde 34% 14 Barra Funda 33% 15 Bela Vista 31% Source: CPS/FGV from Census 2010/IBGE microdata 8

9 Economic Classes % Composition 1992 to % 90% 80% 70% Geologic Layers of Classes Brazil AB C 60% 50% 40% 30% D 20% 10% E 0% Source: FGV Social/CPS from PNAD/IBGE microdata % Evolution of ABC Classes (Traditional and New Middle Classes) % Classe ABC % Classe ABC % Classe ABC % Classe ABC % Classe ABC Source: FGV Social/CPS from PNAD/IBGE microdata 9

10 7, , , , , , , , , ,85 24/05/2018 Past Class Projections AB Class - % 14,09 (2011) Pag. 95 Projections with microdata up to 2009 Source: CPS/FGV from PNAD/IBGE microdata Economic Classes Pyramid Classe DE Classe C Classe AB Source: FGV Social/CPS from PNAD/IBGE microdata 10

11 24/05/2018 Demand Determination: Sales, Sectors & States <-Office and ICTs Northeast-> Copyright marceloneri Sales Evolution: Boom and Burst Volume de Vendas no Comércio Varejista (Outubro de 2003=100) Até abril de ,59 189, l 11

12 out/03 jan/04 abr/04 jul/04 out/04 jan/05 abr/05 jul/05 out/05 jan/06 abr/06 jul/06 out/06 jan/07 abr/07 jul/07 out/07 jan/08 abr/08 jul/08 out/08 jan/09 abr/09 jul/09 out/09 jan/10 abr/10 jul/10 out/10 jan/11 abr/11 jul/11 out/11 jan/12 abr/12 jul/12 out/12 jan/13 abr/13 jul/13 out/13 jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 abr/ jul/16 out/16 jan/17 abr/17 jul/17 out/17 jan/18 24/05/ Change until January 2018 Since 2003 Since 2014 Gas -1,1% -22,1% Market, Beverage 79,3% -0,9% Hipermarket 82,2% 1,2% Vehicles & parts 74% -25,2% Clothing & shoes 30,8% -16,9% Furniture home a 163,9% -18,8% Pharmaceutical 164,7% 2,4% Books Stationery -1,0% -35,0% Office and ICTs 353,3% -25,1% Articles personal 215,1% -5,3% Construction Mat 43,0% -8,3% Total 92,9% -7,9% RETAIL SALES VOLUME BY SECTOR (OCTOBER 2003=100) Clothing and shoes al Retail Sales Volume (October 2003=100) Demand (Purchases Mean Growth = Inequality/ * Income * Population Income Change Change Inequality) 209,56 192, Growth in 20 years : Income per Brazilian: 39,74% Population Growth: 31,97% Number of Households: 72,41% For itens per household multiply by * 1/ Household Size (N) Social Welfare = Mean * (1- Gini) 90 al

13 Growth (%) 24/05/2018 What Explains Sales? GDP or HH Income? Mean, Inequality or Both? 5,50 microdados da PME/IBGE Renda Habitual 15 a 60 anos per capita Vendas reais no comércio PMC/IBGE em logs lnsales x ln GDP Desaz 2003 to 2015 lnsales x ln Household Income 5,00 4,50 4,00 3,50 y = -5,537x + 1,4034 R² = 0,8336 Ln Sales x Ln GINI y = 1,9345x - 5,2555 R² = 0,8595 3,00 4,7 4,8 4,9 5 5,1 5,2 3,60-0,63-0,61-0,59-0,57-0,55-0,53-0,51-0,49-0,47-0,45 5,20 5,00 4,80 4,60 4,40 4,20 4,00 3,80 5,50 5,00 4,50 4,00 3,50 y = 1,6499x - 6,2715 R² = 0,8688 3,00 6,10 6,20 6,30 6,40 6,50 6,60 6,70 6,80 5,50 5,00 4,50 4,00 3,50 LN Sales x Ln Social Welfare y = 1,1915x - 2,2625 R² = 0,8819 3,00 5,00 5,20 5,40 5,60 5,80 6,00 25 Coverage of Basic Goods and Services Conditions in Houses improved Pop. with basic set of durable goods X Pop. with basic set of public services than public services out Notes: * = telephone (landline or mobile), color TV, stove with two burners or +, refrigerator, radio and washing machine ** = electricity, garbage collection, sewage (rede ou fossa ligada à rede), water (rede) Source: Pnad/IBGE microdata. Excluding rural areas of the North region (except Tocantins) Perceived Policies Household Budget Survey POF/IBGE shows that the perception of the C class on the problems of infrastructure & public services such as transport,sports, leisure, education and health, is more on quality than on coverage 13

14 Formal Jobs Carteira de Trabalho Main Symbol of C Class % AAP % w Professional Courses Work and Study Middle Class and Vocational Education Attends Vocational Education by Economic Classes (%) Bell Shaped curve in the Youth Source: microdata from Pnad/IBGE Performing a horse race (stepwise procedure) between mean income, squared income, and Economic Class to explain demand for insurance (health) the latter wins but all are significant Highly non linear income impact 28 14

15 Assets and Permanent Income based Economic Classes Simulador de Renda Was it Sustainable? Consumers and Producers The index of consumption potencial increased 22.6% between 2003 and 2009 while the index of income generation rose 31.2%. That is a 38% difference in favor of the producer index. 15

16 Channels of Impact of Policies for the New Middle Class QUALITY OF EDUCATION EVALUATION AND FUNDING CASH TRANSFERS QUALITY OF WORKER TRAINING AND CERTIFICATION CURRENT NET INCOME INVESTMENT ON PEOPLE DIRECT EFFECT CURRENT BUDGET CONSTRAINT INCOME GENERATION Productivity PRODUCTION FUNCTION MIDDLE CLASS EMPLOYMENT AND ENTREPRENEURSHIP HEALTH AND SECURITY DIRECT EFFECT UTILITY or WELLBEING QUALITY OF JOBS ROTATION AND INCENTIVES BUSINESS ENVIRONMENT SIMPLES, CREDIT AND INNOVATION COMMUNICATION ICTs TRANSPORTATION SEWAGE EXTERNAL INFRASTRUCTURE PROVISION OF PUBLIC GOODS AND SERVICES TAXES TRANSPARENCY LEVERAGE OPPORTUNITIES AND DAMPEN SHOCKS DECENT MARKETS TEMPORAL CHOICE INTERNAL INFRASTRUCTURE Own House CONSUMER PROTECTION AND FINANCIAL EDUCATION SAVINGS, CREDIT AND INSURANCE MICROFINANCE Additional References from Thanks! 16