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Monday, December 17, 2007

'Collapsing' Filipino middle class

here's a sensible article I read yesterday on the way back from Tagaytay. Indeed, some programs should be devoted to the middle class who actually move things and keep the cycle going in this country- they're the majority of consumers who patronize the big businesses of the rich, and they're the ones who consistently and regularly "fund" the government with the taxes from their income automatically withheld.
Read on...
Last updated 03:59:00 12/16/2007

MANILA, Philippines--DESPITE economic growth, the number of middle class Filipinos and their share of the national income pie have shrunk.

The signs of a shrinking middle class are plain to see. Many professionals, from medical practitioners to executives, continue to migrate to developed countries such as the United States, Canada and Australia in search of greener pastures.

They are joined by a record number of Filipinos working abroad because of the poor pay and bleak employment picture in the country.

Another sign is the growing number of students transferring from private schools to public schools because of spiraling tuition.

The rising cost of goods and services, partly as a result of high fuel prices, is further eroding the living standards of middle-class families.

A study by Romulo Virola, Mildred Addawe and Ma. Ivy Querubin of the National Statistical Coordination Board found thatf there was at least a 2-percentage-point decline in the population share of the middle class between 2000 and 2003.

They also found a 4.6-percentage-point drop in the number of middle-class families with overseas-Filipino-worker members.

Antipoverty? How about pro-middle class?

By Dr. Romulo A. Virola

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 Millennium Development Goals (MDG) monitoring by the National Statistical Coordination Board, 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," 'antipoverty," 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.

Petty bourgeoisie

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 (gossip) or para makahanap ng gf or bf (to find a girlfriend or boyfriend), in other words, para makahanap ng mabibiktima (find someone to victimize)? 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 bourgeoisie, the Doña Victorina, Angelika Santibañez, Ariel and Maverick or whoever we and Inday can relate to?

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

Debate on definition

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 held on Oct. 1-2, we wrote and presented a paper titled 'Trends and Characteristics of the Middle-Income Class in the Philippines: Is it Expanding or Shrinking?" [Virola's co-writers were Mildred B. Addawe and Ma. Ivy T. Querubin.]


The paper attempted to define the middle class in terms of income and in terms of socioeconomic characteristics. Using cluster analysis and multiple regression on data from the Family Income and Expenditures Survey (FIES) of the National Statistics Office, the paper provided a glimpse of a possibly collapsing middle class of 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, P283 to P2,045,280. In terms of socioeconomic 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 spent the most in the following expenditure items: 1. food, 46.58 percent; 2. housing and repairs, 16.80 percent; 3. transportation and communication, 7.52 percent; 4. fuel, light and water, 6.95 percent; and 5. education, 3.83 percent. The expenditure items with the least shares are 1. recreation, 0.38 percent; 2. other miscellaneous items, 1.04 percent; 3. tobacco, 1.19 percent; 4. household operations, 1.23 percent; and 5. household furnishing and equipment, 1.76 percent.

No conspicuous spending

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. The expenditure items with the least shares are 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. (See 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. (See Table 2.)

The number of middle-income families actually increased from 1997 to 2000, but decreased from 2000 to 2003. (See Table 3.)

Expanding low-income class

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 six years from 1997 to 2003, for every 100 middle-income families, three families were 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 years. (See Table 3.)

Preliminary results of the 2006 FIES seem to indicate a continuation of the pattern. The good news is that the ratio of the income of the richest 30 percent to that of the poorest 30 percent and the ratio of the income of the richest 10 percent to that of the poorest 10 percent 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. (See Table 4.)


Although the middle-income class has expanded in countries like China 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 percent to 44.3 percent!

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 Merry Christmas!

(Dr. Romulo A. Virola is the secretary general of the National Statistical Coordination Board (NSCB) and chair of the Statistical Research and Training Center. 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. This article first appeared in Virola's column, 'Statistically Speaking," on the NSCB website on Dec. 10. He can be contacted at