InvestmentsMar 27 2014

Book review: The Squeezed Middle

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Rarely does a book title express so succinctly the economic zeitgeist of its time, or so conveniently lend itself to the political blandishments of all sides. We are all, of course, the “squeezed middle” when it suits, and we are all finding ways to make a long-term reality less painful.

This title is a collection of short essays from a wide range of eminent contributors, edited ably by Sophia Parker of the Resolution Foundation, which seeks to define the problem, compare policy approaches in America and the UK and suggest possible ways forward. It is packed with data and based on rather dry, but serious, academic research. This is not a light read.

Exactly who can legitimately claim to be the “squeezed middle”? In research terms, the middle is defined as “people living in households below the national median income, but above the bottom 10 per cent”. In the UK, 11 million adults fall into this category – that is couples having £12,000 to £30,000 per year if they have no dependent children, rising to £19,200 to £48,500 with three children. In the US, calculations are far more regional, with the median income $65,000 (£39,000) in Boston, while $35,000 (£21,000) in Nebraska.

The key point is that in both countries pay is no longer tracking economic growth. This trend started long before 2008 and is set to continue. The Office of Budget Responsibility predicts that by 2015, wages will be lower than in 2001, although it is not clear if that estimate takes into account the recent upsurge in growth and confidence. There are some nasty edges to this reality. Income inequality has increased (by 71 per cent for the top 1 per cent in my working lifetime), as have insecure zero-hour contracts. And while male working hours have remained static, women are working considerably longer.

There is a momentum to this. We read that “the path to mobility is paved with assets” – income is what we use to get by, but assets enable us to get ahead. This translates into houses in the UK, but lower income families are using up their assets as a safety net, failing to save and renting, while their children cannot muster a deposit.

The forces at play are enormous. In truth, technology and globalisation have contrived to undermine the earning-power of the middle class. The essayists argue that policy interventions can make the critical difference, but governments have helped banks more since 2008 than anyone. The analysis concludes UK public policy has done a better job of reducing pain than in the US, but it doubts that either political system has the capability or resolve to re-join the fight.

Reviewed by David Jackman