Inflation has hit middle incomes the hardest. This is the conclusion of a recent study by the business-liberal think tank Agenda Austria. According to the OECD definition, the middle class includes households with 75 to 200 percent of the median income.
The middle class already had to accept losses in the corona pandemic in 2020 and is also in a difficult situation this year. “The state was no longer able to absorb additional burdens. In our opinion, he will not really make it because it is simply too expensive and not convenient for the welfare state to subsidize everyone,” says Hanno Lorenz of Agenda Austria. Now households would bear the additional burden, either directly or through taxes.
Is the middle class shrinking?
This year, the wealth of the middle class will decline more than that of the low incomes, because the state will support them more. This will initially be slightly corrected next year by the new wage agreements, although this will change again later due to the high inflation. “All in all, it can be said that if we manage to get inflation under control in the foreseeable future, this stagnant middle-class prosperity is likely to last another, two, three years,” said Lorenz. On the other hand, if inflation does not fall, the middle class will shrink.
While in some European countries the middle class has shrunk in recent decades, that was not the case here, Lorenz said. “In international comparison, Austria has a very, very broad middle class. So it concerns a very large group of people. And it hasn’t changed much in the last twenty years. This means that in 1997 as many people belonged to the middle class as in 2019.” Three years ago this was 67.4 percent of Austrians.
Wage increases only in the short term
In concrete terms, this means that they receive 75 to 200 percent of the middle income. Payments, such as child benefit, also count. According to Lorenz, there is “no massive loss of wealth in the middle” with inflation rates of two to three percent.
Persistently high inflation rates of six percent or more cannot be offset by wage increases in the long run. “I do not assume that you can sustain these wage increases for three years, then you have a competitive disadvantage and companies will close. Then the question is not whether or not there will be a strike, but that we will have increasing unemployment in Austria and that Of course, this also leads to a loss of prosperity and a loss of income in the middle class.” the tax burden on work is also too high. In some cases it is not financially attractive to work full time.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
