Brazil's New Middle Classes:

The Bright Side of the Poor

Marcelo Neri

Outline:

Concept

The concept of the Brazilian

middle class using an income-

based measure (only the

beginning).

Evolution

Chart income-based classes'

past performance and forecasts

using household surveys (and

longitudinal survey data).

Values & Perceptions

A preview of somewhat richer

profile of different income based

economic classes' (current or

permanent) attitudes and

perceptions.

Sustainability

The sustainability of the middle

class by measuring stocks of

productive assets and of durable

consumption goods (permanent

income) .

SE

CT

ION

SE

CT

ION

SE

CT

ION

SE

CT

ION

Conceptualizingthe Middle Class

absolute or relative measures?

w.r.t. each country or w.r.t. the world?

Incorporating the probability

of becoming poor or rich?

Derive it from a social welfare function?

190

170

150

130

110

2004 2005 2007 20122003

210

902006 2008 2009 2010 2011

Fonte: IPEA a partir dos microdados da PNAD/IBGE e das Contas Nacionais

Real Per Capita 2003 = 100

127,70

140,69

165,88

180,78

127,8

151,7

178,4

206,17

GDP X Mean NHHS X Median NHHS X

10% Poorest

The Relevance of

the median

Growth Rates

Quantile Regressions - Cummulative Growth Rates from 2011 to 2013

Source: PME/IBGE microdata

9.5%

9.0%

9.0%

9.0%9.0%

9.2%

9.2%

9.2%9.1%

8.9%

8.6%

8.3%8.1%

8.0%

7.8%7.6%

7.2%

6.9%

6.2%6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95

Polarization versus Inequality

Example: Society with six people: A, B, C, D, E & F,

with respective incomes of

R$ 6, 5, 4, 3, 2 and 1. If R$ 1 is transferred from A to C and from D to F .

Get a divided society:

R$ 5, 5, 5, 2, 2 and 2Although less unequal, after these progressive

transfers, society has become more polarized.

Polarization and Inequality

����Inequality (Gini) and Polarization (PER with alfa=1.3) ����

0.25

0.26

0.260.27 0.26

0.26

0.26 0.26

0.26

0.25

0.250.25

0.24

0.24

0.23

0.23

0.58

0.61

0.600.60 0.60

0.60

0.59 0.60

0.59

0.58

0.570.57

0.56

0.56

0.550.54

0.540

0.548

0.556

0.564

0.572

0.580

0.588

0.596

0.604

0.612

0.2300

0.2350

0.2400

0.2450

0.2500

0.2550

0.2600

0.2650

0.2700

1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: PNAD/IBGE microdata

Identification Within and Alienation Between

Groups

• Cut income distribution in groups making internal

differences within groups as small as possible &

differences between groups as large as possible. (Theil decompositions spirit or more generally EGR)

• Initial 3 groups: 52,6 and 91 percentiles in 2002-03

• 49 and 87 percentiles in 2012

• Subdividing other groups following the same

procedure plus institutional features (official

poverty lines etc).

• Underreporting & Regional price level differences

How Much Income Inequality is

Explained by Economic Classes?

Source:IBGE microdata

ECONOMIC CLASSESGROUPS WITH

EQUAL SIZES

PME 2002-2003 76.71% 59.34%

PNAD 2003 79.71% 59.91%

PNAD 2009 74.29% 57.96%

POF 2008-2009 71.40% 59.29%

* Adjusted by POF

** in current R$ January 2014 prices

Economic

Classes Lower

Limit

Upper

Limit

Class E 0 1254

Class D 1254 2004

Class C 2004 8640

Class B 8640 11261

Class A 11261 0

Source: PNAD/IBGE and POF/IBGE microdata

Economic Classes Defined by Total Household Income

(calculated originally in per capita terms) (R$)

Source: CPS/FGV. from microdata by PNAD/IBGE

Changes in time: Class C + 40 million people 2003-11 and + 13 million 2012-14.

Classes AB + 9.2 million people from 2003 to 2011 and + 7.7 million from 2012 to 2014.

The AB population will grow proportionally + than C : 29.3% and 11.9%, respectively.

We will talk more and more in the future about a new AB class, just as we´ve been talking, until

now, about a new C class.

96.2 Mi63.6 Mi

48.9 Mi

65.8 Mi105.4 Mi

118 Mi

13.3 Mi 22.5 Mi 29.1 Mi

Class DE

Class C

Class ABPopulation Pyramid and Economic

Classes 2003, 2011 and 2014

2003 2011 2014

Inequality Effect

Class Composition 1992 to 2014*

Source: PNAD/IBGE microdata *class growth forecasted from 2010 to 2014

E

D

C

AB

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1992 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 2014

States' Inequality

Effect

Evolution of Classes Evolution of Class ABC shares

Brazilian State Maps

% Classe ABC 1993

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

1993

% Classe ABC 2003

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2003

% Classe ABC 2009

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2009

% Classe ABC 1995

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

1995

% Classe ABC 2014

13.01 - 28.32

28.32 - 43.63

43.63 - 58.93

58.93 - 74.24

74.24 - 89.55

2014 (forecast)

Source: PNAD/IBGE microdata

Consumers versus Producers:

Sustainable or Not?

The progress in the Brazilian ability to generate

income increased, according to our index, 31.2 per

cent from 2003 to 2009, and potential consumption

increased 22.59 per cent. These data reveals that

the producer’s side increased 38 per cent faster

than the consumer’s.

Transition period

Source: Ipea. from microdata by PME/IBGE.

Probability of Transition to Below

& to Above the Median (%)Sustainability:

Earnings Risk

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Up Down

Period

Public Services and Standard of Living Perceptions

by Economic ClassesTotal Pop

Economic Class

Class E Class D Class C Class AB

Standard of Living Perceptions

Enough family income 21.70% 5.11% 10.58% 26.93% 58.20%

Always consumes type of food wanted 31.39% 9.83% 19.22% 38.99% 69.24%

Has special checking account 13.66% 0.97% 2.48% 13.18% 52.52%

Delay in debt payments 33.15% 43.25% 39.45% 29.30% 16.88%

Good overall housing conditions 49.25% 33.46% 39.86% 55.36% 75.78%

Public Services Coverage and Perceived Quality

Good public transportation services 63.40% 59.81% 60.32% 64.84% 67.86%

No public transportation services 25.18% 45.98% 28.55% 17.76% 10.61%

Good educational services 68.96% 68.64% 66.94% 69.41% 72.76%

No education services 2.70% 2.61% 2.68% 2.70% 2.85%

Good health services 43.49% 39.58% 39.10% 44.70% 56.39%

No health services 4.03% 5.77% 4.58% 3.14% 3.31%

Good sewage services 77.48% 65.36% 71.20% 80.64% 86.11%

Not covered by sewage services 36.80% 61.98% 43.77% 27.57% 12.95%

Good quality of garbage collection services 86.09% 78.40% 82.61% 88.64% 92.79%

No garbage collection services 13.90% 33.24% 16.08% 7.05% 2.65%

Violence in the Neighborhood 31.07% 28.87% 33.08% 30.76% 31.44%

Public Services Quality and

Individual Perceptions

Source: POF/IBGE

Perceptionsof the Middle Class