Figure O.5 Shift in the geography of those under €23 per day towards Southern Europe. Half of this population continues to be found in Central Europe however

The incomes of the middle-class5 have shown signs of relative stagnation during times of growth. Since they’ve been better protected than average households during contractions, this has helped to reduce the impact of the crises on their incomes. But, in the long-term, this group has seen lower than average growth6 . These patterns of middle-class stagnation during periods of growth are seen in Western, Northern and Southern Europe but are not visible in Central Europe where the growth of the middle class has tracked average growth. Middle class households have—again in relative terms compared to other income groups—been more resilient to the crises.

In contrast, the incomes of poorer households across Europe have been highly responsive to changes in the economic environment—both through bad times as well as good. The same high responsiveness to growth that can help propel households out of poverty also subjects them to substantial vulnerability during downturns. Income growth of the bottom 20 percent of the expenditure distribution outperformed average growth both during times of expansion (positive mean growth) and contraction (negative mean growth) (Figure O.6). Worse-off households are more likely to benefit during periods of growth than

Figure O.6 Amplification of growth and contraction on bottom 20 contrasts with a relatively stagnant but protected middle class

Elasticity of growth to average household disposable income growth, by decile

2.00

Elasticity of income decile to average growth More than proportionately reponse to average growth 1.50

1.25

1.00

0.75 Amplification of good and bad: Income of poorer households goes up more than proportinately in expansions—but down more during contractions Middle class stagnation: income of middle class not as hard hit during contractions, but hasn't grown as much during expansions

0.50

Decile 1 Decile 2 Decile 3 Decile 4 Decile 5 Decile 6 Decile 7 Decile 8 Decile 9 Decile 10

Negative Mean Growth Positive Mean Growth

Note: The analytical approach used to conduct this analysis is detailed in Annex 2. The elasticities of decile level growth to average growth uses variation across EU-28 member states, excluding Germany, and are represented as simple averages. The coefficients are statistically higher than 1 for deciles 1, 2 and 10, and are statistically lower than 1 for deciles 5 through 9. Positive mean growth coefficients are statistically different from negative growth coefficients for decile 7, but not for other deciles.

Source: World Bank estimates using annual data from EU-SILC over 2003 through 2016 income years.