POLITICIANS love to talk about the middle. Barack Obama has said he wants an economy that grows "not from the top down but from the middle out". David Cameron promises that his government will support Britain's "strivers". The fashion has spread beyond the rich world: last year's election in Mexico saw much talk of the new clase media. But defining these categories is tricky: in a radio interview in 2010 Ed Miliband, the leader of Britain's Labour Party, stumbled over his new catch-phrase—“the squeezed middle”—when asked exactly who was in it. Despite the ridicule that this attracted at the time, the description is now commonplace, and is likely to be a feature of the run-up to Britain's 2015 general election. So just who is in the middle, and what is squeezing them?
When talking about the squeeze, most commentators refer not just to those exactly in the middle of the income distribution. They tend to take in those who are neither so poor that they depend overwhelmingly on government handouts, nor overtly prosperous. The Resolution Foundation, a British think-tank that has led the debate on stagnant wages, has concentrated on the 40% of the population that earns less than the median wage but more than the bottom 10%. This group, it argues, has particularly suffered from the stagnation of wages and the withdrawal of in-work benefits in recent years.
The plate tectonics of the labour market are responsible for the squeeze. In the early 2000s, in both& Britain and America growth and wages peeled apart. The economy kept growing, but median earners did not feel the benefit. Partly, this was a product of globalisation; the share of new wealth going to employees (rather than shareholders, or back into companies as reinvestment) declined as the quest for profits intensified. But the decline of “middle class” jobs is the most important explanation. On both sides of the Atlantic, automation and outsourcing have destroyed administrative and, particularly, blue-collar industrial jobs. The recent bankruptcy of Detroit is a revealing example of the shift. These jobs were relatively well-paid and secure. Some of those who lose their jobs successfully retrain and join growing service-sector industries as well-paid professionals. But others struggle to do so, and find insecure, low-wage jobs at the other end of the service economy, as call-centre workers or cleaners, for example. So while the overall economy keeps growing, the rewards increasingly accrue to those at the top, and wages for those on low-to-middle incomes stagnate relative to prices.
So what is to be done about the squeezed middle? In the past, politicians mitigated mediocre incomes with cheap debt and benefits. The deregulation of the mortgage market in America—which led to the growth of sub-prime debt that helped to create the conditions for the 2007-08 credit crunch and ensuing downturn—was a classic wheeze to make those on low incomes feel better off than they really were. In Britain the Labour government supplemented low pay with tax credits—by 2008, Leviathan was slipping the "middling" 40% a top-up worth 3.7% of national income every year, the Resolution Foundation calculates. A more sustainable solution might be to support the vocational training and high-tech start-ups that create good, new middle-class jobs. Vocational and technical skills in Britain and America lag behind those in economies such as Germany and Sweden where, not coincidentally, the middle is looking rather less squeezed.
