A Tale of Two Middle Classes: Global Prosperity and Western Stagnation

“Middle class” is hard to define. Economists and sociologists debate whether income, professional status or education define it. To provide a clearer framework, the McKinsey Global Institute considers households with a significant part of their income available for discretionary spending beyond basic needs to be middle class. In terms of income, it starts at $13,500 a year (lower middle class) and ends at $113,000 a year (upper middle class).

So what is happening to the middle class?

If you look at the statistics through a global lens, the middle class is booming. China is an obvious example. By 2030, the McKinsey Global Institute expects around 46 percent of Chinese urban households to move into the upper middle class or above. Those are households that can afford laptops, cars, luxury goods, and travel. And their number is still going to grow by 100 million in less than 15 years.

Similar trends can be observed in India, Southeast Asia or Latin America. Furthermore, an African middle class is clearly emerging. McKinsey Global Institute projects it will make up 15 percent of Africa’s population by 2025. At an aggregate level, globalization is a powerful force to create more prosperity.

Challenges in Developed Economies

But if you focus in on the developed Western countries, the middle class is struggling. There has been a lot of research on income and wealth that shows economic gains have gone disproportionately to top earners since the 1980s. This research found that 65 to 70 percent of households in 25 advanced economies saw their real market incomes fall between 2005 and 2014. That’s about 540 million to 580 million people.

When you look at root causes of this decline of the middle class in certain Western areas, the 2008 recession and slow recovery clearly played a role, yet only to a certain extent. Long-term demographic trends factor in too: aging and shrinking household size. In some parts of the Western world, the ability to advance economically is declining, and we need to understand that this narrative is broken.

Middle Class Economic Data Summary

• Income Definition: Starts at $13,500 a year (lower) and ends at $113,000 a year (upper).
• China Projection (2030): 46 percent of urban households expected to reach upper middle class.
• Africa Projection (2025): Middle class to make up 15 percent of the population.
• Western Household Trends: 65 to 70 percent of households saw real market incomes fall (2005-2014).
• Consumption Growth: Household consumption in Africa grew more than 5% a year since 2000.