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Towards a Middle Class Society: Bridging the Gap between the Low Income and the Middle Income Classes

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  Running Head: TOWARDS A MIDDLE CLASS SOCIETY: BRIDGING THE GAP BETWEEN 1 THE LOW INCOME AND THE MIDDLE INCOME CLASSES Towards a Middle Class Society: Bridging the Gap between the Low Income and the Middle Income Classes Ma. Beatriz Obcena Krizzia Katrina T. Ocampo University of the Philippines Open University  TOWARDS A MIDDLE CLASS SOCIETY: BRIDGING THE GAP BETWEEN THE LOW INCOME AND THE MIDDLE INCOME CLASSES 2 Executive Summary   Defining the middle class in the Philippines is critical in identifying its role in the country’s development. To date, the middle class has not yet been given a clear definition even at the international level. This paper seeks to profile the middle class by describing its composition and identify the steps wherein the Philippine government can intervene to achieve a society composed in majority of the middle class. It looks into the Philippine Development Plan and AmBisyon 2040 as the basis of current efforts that help in transitioning the lower income class to the middle income class. Policy proposals including focus on defining and profiling the class, education, entrepreneurship, investment promotion and social safety nets are also presented.  TOWARDS A MIDDLE CLASS SOCIETY: BRIDGING THE GAP BETWEEN THE LOW INCOME AND THE MIDDLE INCOME CLASSES 3 I. Context or Scope of Problem  The middle class plays a crucial role in the development of a country. They are believed to be advocates of social stability and democracy as they strive for equality and rights in social,  political, and economic aspects. As the Greek Philosopher Aristotle stated in his book Politics: “[…]The best political community is formed by citizens of the middle class, and that those states are likely to be well- administered in which the middle class is large, […] and where the middle class is large, there are least likely to be factions and dissensions.” And with lease conflicts and disagreements, a better nation will prosper and growth in all areas will thrive. Accordingly, aside from the middle class having least tensions and drivers of social stability, studies suggest that income distribution affects economic growth. An increase in the income share of the middle class is associated with higher economic growth. (Dabla-Norris et al., 2015). Similar to other countries, the Philippines acknowledges the role of the middle class in  building the nation and sustaining economic growth. As cited in  AmBisyon Natin  2040, it is the country’s vision to be a “prosperous middle class society where no one is poor” and whose “people will live long and healthy lives, be smart and inn ovative, and will live in a high-trust society.” As such, it is critical to pay attention to the middle class.  This paper seeks to examine and address the problem of defining and profiling the middle class and the steps in achieving a society composed in majority of the middle class. In the following subsections we try to explore the different topics in accordance with our problem and try to see the need for policy action.  TOWARDS A MIDDLE CLASS SOCIETY: BRIDGING THE GAP BETWEEN THE LOW INCOME AND THE MIDDLE INCOME CLASSES 4 Composition of the Middle Class Who is the middle class? Defining the middle class is tricky as there is no exact or one definition that is acceptable internationally. It varies widely from country to country. How do we then move forward in studying their roles and contributions if we cannot define and properly identify them? Let us then take a look at the various definitions given for the term middle class. According to Brandy and Buge (2014), two approaches are used in empirical studies: one is dependent on how a person perceives himself and the other based on data such as income and  purchasing power. Using the first may not be appropriate and sufficient since it is highly subjective and dependent on an individual's view of his current socio-economic status as well as the socio-cultural context of his area of residence. It is thus more apt to use observable data as in income which may be defined through either relative or absolute measures. Birdsall, Graham, & Pettinato (2000), used a relative approach and defined the middle class as those who are within 75% to 125% of the median income distribution of a given country. According to them, this does not capture a fixed notion of a “middle class.” Instead, it captures the middle quintiles of households, ranked by wealth, in income terms in each country. In the Philippines, Virola et al. (2013) defined the middle class through cluster analysis and multiple regression and proposed two definitions, one based on income and the other based on socio-economic status. Their definition used the 2003, 2006, and 2009 data from the Family Income and Expenditures Surveys (FIES) and the January series of the 2004, 2007 and 2010 data from the Labor Force Surveys (LFS) conducted by the then National Statistics Office (NSO), now Philippine Statistics Authority (PSA). Using this approach, the middle class (in 2013) as
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