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FEATURE STORY

Latin America: Middle Class hits Historic High

Latin America's new middle class

STORY HIGHLIGHTS
  • In the past decade, the middle class in Latin America grew 50%, and now represents 30% of the population.
  • According to the experts, this growth is due to growth and job creation
  • To maintain these gains, the region needs to enact policy reforms within the employment, tax and social security sectors.

The black Toyota Yaris speeds out of the dealer’s parking lot merging nervously into the main thoroughfare, almost conscious of its reduced size and newcomer status on the busy Santiago roads.

Sturdy and unassuming, the Yaris is an apt metaphor for the status of its occupants and brand new owners: the Pugh family of five, who have fought hard to join the ranks of Latin America’s middle class, and are now enjoying their new place in society while cautiously navigating the bumps in the road to prosperity that lies ahead of them.

More than 50 million people like the Pughs have worked their way up the social and income ladder in Latin America in the past decade to become members of the middle class –an increase of over 50%. Almost one third of Latin American families are now considered to be middle class, a development that has also helped shrink the region's share of the poor to almost the exact same proportion (or 30% of the population), experts say in a new study.

“It’s a historic increase , related to the drop in unemployment rates and informal employment. Therefore, the growth of the middle class in the past ten years is down to growth dynamics and job creation,”explains World Bank Regional Chief Economist Augusto de la Torre.

This is welcome news for the millions of Latin Americans who fall into the middle class income bracket of US$10-US$50 per capita per day. But, as global conditions worsen, experts worry that people may be squeezed out of their newly achieved status.

As it turns out, the current spike in middle class numbers is a direct result of the record economic expansion and job creation of the past few years, and which could become the first casualty of the growing economic turmoil in Europe, and slowing growth in China.

Open Quotes

The growth of the middle class in the past ten years is down to growth dynamics and job creation Close Quotes

Augusto De la Torre
Regional Chief Economist, World Bank

Obviously, better access to quality education and reliable safety nets have played an important role in lifting Latin Americans out of poverty and into the middle class.

Consider these stats. More than 73 million people left the ranks on the poor over the past decade. Latin Americans spent more time in the classroom: an average of 8 years of schooling per student, up from 5 years not long ago.

And 70 million more women joined the labor market in recent years, playing a pivotal role in reducing poverty and expanding the economic middle on the strength of improved academic credentials and professional skills.

"Most members of my family want to pursue a college degree, which wasn’t very common in my parent’s generation,” says 28 year-old teacher Marcos da Silva from Brasilia.

Brazilians’ motivation to move up in life comes as no surprise. Brazil’s middle class growth of over 40 percent is the region’s fastest. So much so, that economists fear it cannot be sustained at its current pace and conditions of indebtedness.

Colombia has also expanded its middle class by almost 50%, but has done so in a more sustainable and across-the-board manner, according to the report. Costa Rica, Chile and Peru are also among Latin America’s top middle class advocates.
In order to maintain and, in some cases, boost those gains the region needs to adopt a new generation of policy reforms comprising labor, taxation and social security, experts warn.

Mexico's middle class has grown since the turn of the century, with close to 17 percent of the population joining its ranks between 2000 and 2010. Social programs and better access to education boosted the country's workforce.

Those reforms include better targeting subsidies for the poor, improving tax collection to pay for public services, and emphasizing social insurance (such as unemployment benefits) rather than social protection, de la Torre notes.