The middle class is shrinking across the developed world, according to a new report from the Organization for Economic Co-operation and Development. For Prime Minister Justin Trudeau’s Liberals or any future Canadian government, this is both an opportunity and a challenge.
Canadian governments and political parties have made defending the middle class a key part of their agendas and platforms. It’s a pitch that has powerful appeal for many voters. But as the study published Wednesday makes clear, battling for middle-income earners means fighting trends that are global in nature.
The OECD report, titled “Under Pressure: The Squeezed Middle Class,” defines that demographic as people with anywhere from 75 per cent of the median national income to 200 per cent. Across more than 30 OECD countries, this swath of the population has dwindled in recent years as younger people have struggled to find economic traction. While almost 70 per cent of baby boomers were part of middle-income households in their 20s, only 60 per cent of millennials are, the OECD says.
As the middle class has been shrinking in size, the cost of a middle-class existence has been surging. On average, “house prices have been growing three times faster than household median income over the past two decades,” the OECD declares. Education and health-care costs have also rocketed ahead.
Families are taking on increasing amounts of debt to finance these rising costs. More than one in five middle-income households in OECD countries now spend more than they earn.
To make matters worse, more and more middle-class paycheques are under threat from technological shifts. About one in six middle-income jobs are at risk from automation, according to the OECD, and even people who are working are finding it difficult to make much progress. Middle incomes have barely grown in real terms over the past 10 years.
Many people are becoming disenchanted. A growing number are convinced the system is unfair. “In many OECD countries, large groups of people remain pessimistic about the economic prospects of the next generation and nostalgic about the economic conditions of the past,” the report says.
The OECD urges governments to take action. It argues that the top 10 per cent of earners have done significantly better than the middle class over the past three decades and should therefore bear more of society’s costs. The report suggests increasing capital gains taxes, property taxes and inheritance taxes, as well as stepping up efforts to fight tax avoidance and evasion.
On top of that, the researchers say OECD governments should look at programs to make housing more affordable. They suggest looking at ways to make it easier to build housing in desirable neighbourhoods, as well as offering more help to first-time buyers. They also urge generous support for daycare, higher education and retraining programs.
The report studiously avoids making recommendations for individual countries. It is clear, however, that all the worldwide issues it is addressing are present in Canada. The Canadian middle class (58 per cent of the population) has shrunk in recent decades and is now slightly smaller than the OECD average (61 per cent). Soaring housing costs, rising indebtedness and closed factories have all left scars on the Canadian work force over the past generation.
But while the OECD agenda may make sense in its broad sweep, the short-term politics around many of its components are just plain nasty, especially in a Canadian context. Any attempt to increase taxes on the rich, for instance, is likely to result in a backlash similar to the one the Liberals evoked when they tried to crack down on the use of private corporations to avoid taxes. And any attempt to make homes more affordable – that is, drive down the price of real estate – would almost certainly infuriate many middle-class households counting on big capital gains on their principal residences.
The deepest question of all may be how much any national government can do to combat what is an international phenomenon. As the OECD report makes clear, one of the main forces squeezing the middle class is the technology that has replaced many middle-skilled workers with computer programs. Globalization has added to the pressure.
Both these factors have contributed to a decline in the number of good jobs for people who don’t happen to be lucky or skilled enough to be in the right sectors. Unfortunately, neither is easily addressed on a national basis. The OECD report does a fine job of outlining the extent of the problem. But it also underlines how tough it will be to reverse the decline of the middle class.