By World Bank standards, almost the entire working population of T&T should be earning an income that qualifies them to be included in the country's middle class.
In a report released Tuesday, entitled "Economic Mobility and the Rise of the Latin American Middle Class"the World Bank said that the income definition of the middle class in Latin America and the Caribbean is between US$10 and US$50 per day. That works out between $64 and $320 per day.
In 2011, the government increased T&T's minimum wage to $12.50 per hour which works out to be $100 per day and US$15.62 per day. This means that even a worker earning the minimum wage in T&T's formal employment sector qualifies to be included in the country's middle class, according to the World Bank metric.
At US$15.62 a day, T&T's minimum wage is 50 per cent higher than the lowest threshold of the World Bank definition of middle class. T&T has a population of approximately 1.3 million and a workforce of 616,400 as at December 2011, according to the Review of the Economy published by the Ministry of Finance in 2012.
At the previous minimum wage of $9 per hour, most of the country's working population would still qualify to be included in the middle class. The $12.50 per hour minimum wage came into effect in T&T in 2011. The previous minimum wage of $9 per hour came into effect in 2005. Prior to that, the national minimum wage was $7 per hour, in effect since 2003. Therefore prior to 2005, minimum wage earners would not have qualified as middle class using the World Bank standard.
Still, according to the World Bank, T&T enjoyed the highest Gross Domestic Product (GDP) per capita in Latin America and the Caribbean during the period 2000 to 2010. (See Figure 3.)
The overarching claim of the report is that "after decades of stagnation, the size of the middle class in Latin America and the Caribbean recently expanded by 50 per cent – from 103 million people in 2003 to 152 million (or 30 per cent of the continent's population) in 2009.
"Over the same period, as household incomes grew and inequality edged downward in most countries, the proportion of people in poverty fell markedly: from 44 per cent to 30 per cent. As a result, the middle class and the poor now account for roughly the same share of Latin America's population."This is in stark contrast to the situation prevailing "for a long period"until about 10 years ago, when the share of the poor hovered around 2.5 times that of the middle class, the World Bank said.
The study, co-authored by Francisco H. G. Ferreira, Julian Messina, Jamele Rigolini, Luis-Felipe L�pez-Calva, Maria Ana Lugo, and Renos Vakis, "investigates the nature, determinants, and possible consequences of this remarkable process of social transformation,"the World Bank said.
The study said: "Such large changes in the size and composition of social classes must, by definition, imply substantial economic mobility of some form. A large number of people who were poor in the late 1990s are now no longer poor. Others who were not yet middle class have now joined its ranks."
Upper class
The study yields an income threshold of US$10 per day, at purchasing power parity (PPP) exchange rates, as its lower-bound per capita household income for the middle class. The upper income threshold for the middle class is set at US$50 per capita per day, based primarily on survey data considerations by the World Bank. Persons making above US$50 per day are part of the "upper class,"according to the World Bank.
According to the report, "some of the key factors favoring the upward mobility in Latin America were higher levels of education among workers; higher employment in the formal sector; more people living in urban areas; more women in the labour force; and smaller families."
According to the then Ministry of Science, Technology and Tertiary Education, the tertiary education participation rate in T&T steadily increased from 2001 to 2008, from 7 per cent to 40 per cent. (See Figure 1.) Enrollment in the country's major tertiary level institutions also increased from 6,000 in 2001 to 28,000 in 2009. (See Figure 2.)
In its pitch to attract foreign investors from the financial sector, the Trinidad and Tobago International Financial Centre says on its website that the T&T government has invested heavily, approximately US$2 billion in tertiary education over the last decade.
It also notes that government created the Government Assistance for Tuition Expense (GATE) in 2004. GATE fully subsidizes tertiary education. Government also created the Higher Education Loan Program (HELP) in 2006, which is a special soft loan facility created for use by tertiary students. As of the 2009-2010 academic year, there were approximately 70,000 students enrolled in over 80 post secondary and tertiary education institutions, the TTIFC says. The University of the West Indies, St. Augustine campus, has the largest enrolment of about 17,000 students. The School of Business and Computer Science has second largest enrollment at about 12,200 students.
Kim: World must learn from LAC
During a conference call to release the study, the Washington-based President of the World Bank Dr. Jim Yong Kim said: "Middle class growth in Latin America and the Caribbean should stand as an example to inspire rest of the world."He said the region must now "focus on 7 per cent of Latin Americans without access to clean water and 20 per cent without sanitation."Kim said that in spite of the growth of the middle class in Latin America, there is still "much to do."
That notwithstanding, Kim said: "Governments in Latin America have proved their ability to create conditions for economic growth and poverty reduction."Kim said he was "sure Latin America would balance its complicated economic situation so that the middle class continues to grow."
The study placed heavy emphasis on parental background and education levels as factors influencing a person's ability to be in the middle class. "Parental background influences children's outcomes through a variety of channels,"the study said. "Even before children are born, maternal nutrition and health during gestation have an impact on children endowments at birth. In turn, there is increasing empirical evidence suggesting that these birth endowments have an influence on adult outcomes, including educational attainment and incomes."
Parents affect children through heredity of genetic endowments, which in turn affects children's schooling and income, an aspect first formalized by the seminal work of Becker and Tomes (1979), the World Bank said. In addition, parental ability influences their own educational attainment and thus their income. Together, these determine the level of "home investments"in offspring (including time spent with the children and the quality and quantity of goods and services delivered to them), which, in turn, will affect the final schooling level.
Furthermore, parental income exerts a direct influence on final schooling (through the choice of school) and on the children's eventual income (through networks and connections in the labour market), the World Bank said. "Finally, the schooling level attained by the children will affect their income later in life and further experience through the labor market (post-school investments). All of these factors, in turn, affect their own children's earnings and income,"the study said.
The appearance of a strong middle class is, for many countries, a relatively new phenomenon, the World Bank said. Between 2003 and 2009, the Latin American middle class grew at an annualized rate of 6.7 per cent, from slightly above 100 million people to more than 150 million. In 2008, for the first time, there were almost as many people in the middle class as in poverty (152 million and 158 million, respectively).
"Despite the global financial crisis, the trend reverted only minimally in 2009,"the study said. This dramatic increase in the middle class contrasts strongly with the lagging performance of the 1990s–a "lost decade"for the middle class, during which its size fluctuated at around 21 per cent of the population for most of the decade, barely keeping pace with population growth, the World Bank said.
The study said the overall class-related trends also hide heterogeneities across countries. In Argentina, Chile, and Peru, the middle class increased by more than 10 percentage points between 2000 and 2010, while in the Dominican Republic, El Salvador, and Uruguay, it actually shrank. Overall, however, most countries experienced a large surge in their middle classes, so that the aggregate trend for Latin America did not hinge only on the massive increase of the Brazilian middle class, which alone contributed more than 40 per cent of the overall increase in the region, the bank said.
Influential factors in middle-class growth
Although important, economic growth is not the only driver of the increase in middle class, the study said. Countries with similar growth rates at times differed significantly in terms of middle-class growth.
"The Dominican Republic, for instance, experienced a higher growth rate than Ecuador between 2000 and 2010, but its middle class shrank, while Ecuador's grew by more than 15 percentage points. This difference clearly indicates that several other factors influence the growth of the middle class,"the study said.
A purely mechanical factor that is often overlooked concerns differences in initial conditions, the study said. How much the middle class increases for each percentage point of growth depends on where the middle class threshold of US$10 per capita per day crosses each country's income distribution.
The study said that by simple "mechanics,"in poorer countries such as Honduras, 1 percentage point of growth will bring smaller growth of the middle class than it will in wealthier countries such as Uruguay, where the middle class threshold crosses the income distribution nearer the mode (where population density is higher and, thus, more people change class for the same growth performance).
Forecasts for poverty reduction,middle-class growth
Poverty reduction and the rise of the middle class are expected to continue for the next two decades, albeit at a slower pace, the world bank report said. The authors of the study agree with Bussolo and Murard (2011) who forecast poverty and middle-class levels in 2030 for both Latin America and the emerging world.
Bussolo and Murard base their forecasts, they said, on two tools developed by the Development Economic Prospects Group of the World Bank: (a) a LINKAGE global computable general equilibrium (CGE) model that feeds into a (b) Global Income Distribution Dynamics (GIDD) simulation.
The study said that by 2030, 42 per cent of Latin Americans are expected to be in the middle class, up from 29 percent in 2009. However, almost a fifth (18 per cent) will remain in poverty. Over the next two decades, poverty is thus expected to fall by approximately 14 percentage points– a slower decline than the recent one, where poverty fell by more than 10 percentage points during the 2000s.
Lower rates of poverty reduction are expected, both because the poverty gap remains relatively high in the region (hence, some of the remaining poor are far from the poverty line of US$4 per capita a day), and because of lower long-term growth forecasts with respect to the recent boom. The study called on readers to "observe, also, that the proportion of people in the vulnerable group is expected to remain at current levels until at least 2030."
