Middle class faces poverty

New ADB study recommends better wages

MIDDLE-class Filipino families with a large number of household members are at risk of falling into poverty if the government fails to create policies that improve wages, education and healthcare, an Asian Development Bank (ADB) study has warned. In the study, “The Rise of Asia’s Middle Class,” the Manila-based lender said that middle-class households with large family size and an equally large member of dependents are more likely to fall into poverty.

”The larger the number of household members working as own-account members and casual/temporary employees, the greater the risk the household will fall into poverty,” the ADB added.

The bank considers a family middle class if it has a purchasing power parity (PPP) of between $2 and $20 a day.

In 2006, 53.9 percent of Filipinos were considered middle class, higher than the 43.8 percent in 1988.

The ADB study said that 73.8 percent of the middle class are in urban areas and 34.5 percent in rural areas.

According to the study, there were 30.7 percent of Filipinos with a PPP of $2 to $4 a day; 11.8 percent, $4 to $6 a day; 8.1 percent, $6 to $10; and 1.5 percent, $10 to $20.

Filipinos with PPP of more than $20 a day are considered rich, while those with PPP of $1.25 a day are poor.

In 2006, the number of poor Filipinos went down to 21.8 percent from 28.8 percent in 1988.

In the Philippines, middle-class individuals are much more likely to work in the government and in private corporations.

The ADB’s estimate was based on the country’s Family Income and Expenditure Survey for 1988 and 2006.

The National Statistical Coordination Board (NSCB) earlier reported that the number of middle-class Filipinos shrank from 19.9 percent of the population in 2003 to 19.1 percent in 2006.

But this collapse was not as sharp as that between 2000 and 2003, when the number fell from 23 percent to 22.7 percent.

In 2006, the NSCB said that the middle-income class may be defined as being composed of families with annual income ranging from P246,109 to P2,000,072.

In 2008, however, a family needed an income that ranged from P276,626 to P2,251,551 to be considered middle class. And in 2009, it would need to earn close to half a million pesos to be in the middle class.

The ADB study said that the middle-class population (PPP of between $2 and $20) in developing countries increased from 44 percent of the population in 1988 to 54 percent in 2006 (about 45 million people), a moderate and unsurprising increase given laggard growth in the economy.

The increase meant that about 21 million people were added to the middle class during the 18-year period, the vast majority of whom were added to the $2 to $4 and $4 to $10 consumption groups

”Even in the Philippines, with far slower economic growth than other countries, the middle class had grown significantly over the last two decades,” ADB said.

It, however, added that lower-middle class—consuming $2 to $4 per person a day—is very vulnerable to slipping back into poverty at this level, which is only slightly above the developing world poverty line of $1.25 per person a day.

Jong-Wha Lee, ADB chief economist, said that policies are needed to encourage the creation of and access to more well-paid jobs and more advanced education and health care to help prevent slippage back into poverty, and these policies mitigate additional environmental constraints and health concerns.

With appropriate middle-class-friendly policies, the report said that Asia will be able to move away from export-led to domestic-led consumption growth and reduce its exposure to negative external shocks, such as the 2008 global financial crisis, which began in the US.

In turn, such move will also help correct the global imbalances that contributed to the financial crisis.

The ADB study showed that Asia’s consumers spent an estimated $4.3 trillion (in 2005 purchasing power parity dollars), or about one-third of Organization for Economic Cooperation and Development consumption expenditure, in 2008 and by 2030 will likely spend $32 trillion, comprising about 43 percent of the worldwide consumption. –DARWIN G. AMOJELAR SENIOR REPORTER, Manila Times