The 'Squeezed Middle' in the Great Recession: A Comparative European Analysis of the Distribution of Economic Stress

by · Aug 28, 2015 · 1 202 views ·

In this paper we analyse variation on the impact of the Great Recession on economic stress across income classes for a range of advanced European countries.. Our analysis shows that conclusions relating to trends in polarisation versus middle class squeeze are highly dependent on specification of welfare regime and are significantly driven by exacerbation of the degree of within regime heterogeneity introduced by the changing circumstances in Iceland, Ireland and Greece. Each exhibited a substantial increase in level of economic stress. However, changes in the pattern of income class differentiation were somewhat different. In Iceland while all classes experienced significant increases in stress levels, a form of middle class squeeze was observed. For Ireland the pattern of change involved a contrast between the three lowest and the two highest classes. In this case polarization does not exclude middle class squeeze. For Greece we observe a more hierarchically differentiated pattern of change although, as in the Irish case, there is a contrast between the three highest and the two lowest income classes. Changes in the distribution of household equivalent income played no role in explaining the changing distribution of economic stress across income classes once the impact of material deprivation was taken into account. These findings bring out the extent to which the impact of the Great Recession varied even among the hardest-hit countries, and even more so between them and the countries where it represented a less dramatic, though still very substantial, macroeconomic shock. They also serve to highlight the advantages of going beyond reliance on income in seeking to understand the impact of such a shock.

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