NSCB - Statistically Speaking... Anti-Poverty? How about Pro-Middle Class?

Anti-Poverty? How about Pro-Middle Class?
by Dr. Romulo A. Virola ¹
Secretary General, NSCB

We all know that the overarching goal of our development efforts is to reduce poverty. Toward this end, many programs and policies have been formulated, implemented and monitored over the years. Surely there are improvements here and there, but the pace of progress just does not seem fast enough. In fact, per the MDG monitoring by the NSCB, we only have a medium probability of attaining our target to halve poverty by 2015! Why? Is something wrong with the implementation of these programs or are our poverty reduction strategies simply ill-conceived?

Generally, it is believed that, for a country to be truly and sustainably prosperous, there must be a broad-based middle class that serves as a stabilizing influence on society. A middle-class that has the knowledge, the skills and the resources to foster economic growth and help generate employment for the poor. But so far, the poverty reduction programs we have crafted have focused mainly on being “pro-poor”, “anti-poverty”, helping the “poorest provinces”, etc. We seem to have completely ignored the needs of and the strategic importance of building and expanding the middle class of Philippine society. Thus, while we all agree to want to help the poorest of the poor, a strategy that pays attention to the middle class may be more effective in achieving our MDG goal to halve poverty by 2015! It is then of interest to find out what is happening to the Pinoy middle class.

And just who constitutes this middle-class? Does it include those of us who love to be seen spending precious moments at the gym either to make chismis or para makahanap ng gf or bf, in other words, para makahanap ng mabibiktima,? Or those of us who go to the golf course and watch our handicap soar to new heights each day? The noisy minority perhaps, who complain about many things and everything, instead of counting their blessings? Or the intellectuals that many of us think we are, the petit bourgeosie, the Dona Victorina, Angelika Santibañez, Ariel & Maverick or whoever we and Inday can relate to?

In the United States, ideological and economic theories consider the middle class as consisting of all those who are neither “poor” nor “rich”, or as being a relative elite of professionals and managers, defined by lifestyle and influence².

Sometimes, the middle class is defined simply as the statistical middle class, meaning those whose income is in the middle of the income distribution, like the middle 50 percent. No matter if the statistical middle class cannot afford the so-called middle class lifestyle – government statisticians cannot! But surely, the debate will continue as to what constitutes the middle class.

During the 10th National Convention on Statistics (NCS) held on 1-2 October 2007, we wrote and presented a paper entitled “Trends and Characteristics of the Middle-Income Class in the Philippines: Is it Expanding or Shrinking?”³ The paper attempted to define the middle class in terms of income and in terms of socio-economic characteristics. Using cluster analysis and multiple regression on data⁴ from the Family Income and Expenditures Survey (FIES) of the National Statistics Office, the paper provided a glimpse into a possibly collapsing middle class of the Philippine society. The following results were obtained:

The middle income class may be defined as those families who, in 2007, have total annual income ranging from P251, 283 to P2,045,280. In terms of socio-economic characteristics, the middle-income families are those who meet all of the following requirements: (1) whose housing unit is made of strong roof materials; (2) who own a house and lot; (3) who own a refrigerator; and (4) who own a radio.

The general population spent⁵ the most in the following expenditure items: (1) food, 46.58%; (2) housing and repairs,16.80%; (3) transportation and communication, 7.52%; (4) fuel, light and water, 6.95% and (5) education, 3.83%. The expenditure items with the least shares are (1) recreation, 0.38%; (2) other miscellaneous items, 1.04%; (3) tobacco, 1.19%; (4) household operations, 1.23%; and (5) household furnishing and equipment, 1.76%.

On the other hand, it is good to note that the middle income class does not seem to favor a lifestyle of conspicuous consumption. Its top expenditure items are (1) food (2) house rent (3) transportation and communication (4) fuel, light and water and (5) education while the least shares of expenditures go to (1) nondurable furnishings (2) alcoholic beverages; [obviously, the middle class has no passion, despite Iza Calzado] (3) tobacco [which Lucio Tan may not like] (4) recreation and (5) house maintenance and minor repairs. (Table 1)
While the Filipino middle class shrank only a little between 1997 and 2000, there was at least a 2 percentage point decrease in the population share of the middle class between 2000 and 2003 (Table 2)
The number of middle income families actually increased from 1997 to 2000, but decreased from 2000 to 2003. (Table 3)
The percentage share of both the middle and high income classes shrank between 1997 and 2000, as well as between 2000 and 2003, resulting in an expanding low income class in Philippine society. As of 2003, less than 1 in 100 families belongs to the high income class; about 20 are middle income and 80 are low income. Thus, in a span of 6 years from 1997 to 2003, for every 100 middle income families, 3 families have been lost to the low income category. Of course, it must be stressed that the low income class is not necessarily poor, but this trend maybe the basis when people ( the middle class?) complain that they do not feel the impact of the economic progress that the country has achieved in recent years⁶. (Table 3)

Preliminary results of the 2006 FIES seem to indicate a continuation of the pattern⁷. The good news is that the ratio of the income of the richest 30% to that of the poorest 30% and the ratio of the income of the richest 10% to that of the poorest 10% has gone down. In addition, the Gini coefficient has improved from 0.4605 in 2003 to 0.4564 in 2006, indicating an income distribution that is getting slightly more equitable. The bad news is that the income share of the families in the fifth to the seventh deciles has gone down, meaning that the income share of some of the middle class families has shrunk. (Table 4)

Although the middle income class has expanded in emerging countries like China⁸ and India, this phenomenon of a collapsing middle class is present in other countries. For example, Wikipedia cites statistics about the shrinking American middle class as well: over the past two decades, the number of American households in the middle half of the income distribution decreased from 48.2% to 44.3%!

Indeed, it is a challenge to our development planners to do something about and for the middle class. We can no longer ignore the seemingly systematic shrinking of the group of professionals and skilled workers who can spell the difference between us being mired in poverty or crossing over to the league of first world countries by 2020.

But then, if the Pinoy middle class is truly shrinking, why are spas burgeoning? Or why does business at Starbucks seem to be sizzling? And our neighbors at Rustan’s always a- rushing? Maybe we are spending just much more than we can afford?

Have a Blessedly Merry Christmas!

Table 1. Top and Bottom 5 Major Expenditure Items

Top 5
Rank	General Population		Middle-Income Class
	2000		2000		2003
	Item	Share	Item	Share	Item	Share
1	Food	46.58	Food	36.22	Food	34.08
2	Housing and Repairs	16.80	House Rent/ Rental Value	15.24	House Rent/ Rental Value	14.80
3	Transp. & Communication	7.52	Transp. & Communication	8.62	Transp. & Communication	9.51
4	Fuel, light and water	6.95	Fuel, light and water	5.90	Fuel, light and water	6.22
5	Educational	3.83	Educational	5.72	Educational	5.76
Bottom 5
Rank	General Population		Middle-Income Class
	2000		2000		2003
	Item	Share	Item	Share	Item	Share
1	Recreational	0.38	Nondurable Furnishings	0.25	Nondurable Furnishings	0.22
2	Other Miscellaneous Items	1.04	Alcoholic Beverages	0.51	Alcoholic Beverages	0.48
3	Tobacco	1.19	Tobacco	0.67	Tobacco	0.62
4	Household Operations	1.23	Recreation	0.67	Recreation	0.63
5	Household Furnishing & Equipment	1.76	House Maintenance & Minor Repairs	1.06	House Maintenance & Minor Repairs	0.75

Table 2. Annual Family Income of the Middle-Income Class: 1997, 2000, and 2003

Year	Family Income				Percent Families
Year	Mean	Median	Minimum	Maximum	Percent Families
1997	278,305	226,398	148,307	1,207,122	23.0
2000	331,646	268,700	178,468	1,449,295	22.7
2003	366,329	298,380	203,109	1,651,632	19.9

Table 3. Distribution of Families By Income Classes: 1997, 2000, and 2003

Year	Income Class
	Low		Middle		High
	Level	Percent	Level	Percent	Level	Percent
1997	10,881,914	76.6	3,260,474	23.0	50,074	0.4
2000	11,598,258	77.0	3,422,524	22.7	51,160	0.3
2003	13,172,033	79.9	3,282,511	19.9	25,849	0.2

Table 4. Percentage Point Change in Income Share^a/, 2003-2006: Philippines^b/

INCOME DECILE	2006	2003	PERCENTAGE POINT CHANGE, 2003-2006
FIRST TO FOURTH	13.2687	13.1309	+0.1378
FIRST	1.8717	1.8055	+0.0662
SECOND	2.9412	2.8724	+0.0688
THIRD	3.7767	3.7751	+0.0016
FOURTH	4.6791	4.6779	+0.0013
FIFTH TO SEVENTH	22.0588	22.1584	-0.0996
FIFTH	5.7821	5.8268	-0.0448
SIXTH	7.1858	7.2220	-0.0362
SEVENTH	9.0909	9.1096	-0.0187
EIGHT TO TENTH	64.6767	64.7066	-0.0299
EIGHTH	11.8984	11.8588	+0.0396
NINTH	16.8783	16.5778	+0.3006
TENTH	35.9000	36.2700	-0.3700

Ratio of Top 30% over Bottom 30%	7.5300	7.6600	-0.1300
Ratio of Top 10% over Bottom 10%	19.1800	20.0900	-0.9100
Gini Coefficient	0.4564	0.4605	-0.0041

Source of basic data: National Statistics Office (NSO)

a/ - Based on the computations made by the NSCB Technical Staff.
b/ - All computations made were in nominal terms as the public use file (PUF) of the 2006 FIES, which is needed to compute for each household's income in real terms, is not yet available.

Reactions and views are welcome thru email to the authors at ra.virola@nscb.gov.ph

_________________

¹ Secretary General of the National Statistical Coordination Board (NSCB) and Chairman of the Statistical Research and Training Center (SRTC). He holds a Ph. D. in Statistics from the University of Michigan in Ann Arbor, USA and has taught mathematics and statistics at the University of the Philippines. He is also a past president of the Philippine Statistical Association. The author thanks Mildred B. Addawe, Magnolia C. San Diego, Candido J. Astrologo, Jr. and Noel S. Nepomuceno for their assistance in the preparation of this article.

^² Wikipedia, The Free Encyclopedia Web Page, August 2007. <http://en.wikipedia.org/wiki/American middle class>

³ Convention Papers, 10th National Convention on Statistics, NSCB. The NCS paper was co-written by Mildred B. Addawe & Ma. Ivy T. Querubin. The NCS is held every three years under the stewardship of the NSCB.

⁴ A panel data would have been more appropriate but the paper used the cross-sectional data of the FIES.

⁵ Based on the 2000 FIES weights.

⁶ The GDP grew at 7.1% in the first quarter, 7.5% in the second quarter, and 6.6% in the third quarter of 2007.

⁷ Some Statistics Using the Preliminary Results of the 2006 FIES. Social Sectors B Division, NSCB.

⁸ Thriving in the Middle Kingdom. Jim Frederick, TIMEasia. http://www.time.com/asia/features/china_cul_rev/middle_class.html

Posted 10 December 2007.

Related Links:

Poverty Statistics


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