DENMARK, China, India, the USA. These are all countries with a strong middle-income group. They are also countries that have the strongest growth rates, high levels of quality of life, are the most desired places to live, and are easy to do business with. By contrast, countries like Germany, Japan, Poland and Italy are characterised by a shrinking middle-income tier. At the same time, their relative attractiveness in the world rankings is on the decline.

Could it be that middle-income households are the driving force behind the success of a country? Where does Jamaica stand in support of its middle-income group? What can be done to strengthen and bolster the local middle-income group to propel Jamaica towards sustainable growth and the 2030 objective of the “place of choice to live, work, raise families and do business?”

The COVID-19 pandemic precipitated a global economic and social fallout which has never been experienced by many of us and was unforeseen by most. In Jamaica the consequences of the virus included increased unemployment — peaking at 12.6 per cent in September 2020 — and elevated inflation and interest rates. The ongoing crisis in Ukraine has intensified the fallout from the pandemic as oil prices rally and investor sentiment declines further.

Elevated housing, fuel, utilities, food, clothing, and even education/schooling costs are reducing the financial freedom that many middle-income households may have been exposed to in the past. Higher day-to-day costs will also reduce the saving and investment capabilities of these middle-income households, especially because wages are not rising at the same pace as inflation.

The economic benefits that are usually enjoyed by middle-income individuals are diminishing just as fast as the entire socio-economic group may be. The Jamaican middle-income group, much like others globally, is actually ‘squeezed’ by prolonged economic fallout and eroding purchasing power. The term squeezed refers to the pressures that middle-income individuals face to maintain or even improve their existing quality of life. The gap between upper-income and the middle-income is noticeably being stretched, while the line between the socioeconomically marginalised and middle-income earners is becoming blurred.

Historically, middle-income households have contributed to economic growth through job creation and innovation as many of its members venture into entrepreneurship, producing a substantial supply of fiscal revenue for governments, a productive labour force, and a source of stable demand. The middle-income group contributes considerably to tax revenues, mainly through pay as you earn (PAYE) and the local general consumption tax (GCT). It is important to highlight that PAYE and GCT are the primary sources of government revenue, which have accounted for an average 34 per cent of the total revenue over the past 15 fiscal years. These government revenues are, in turn, used to fund education, health care, housing, and welfare programmes.

Furthermore, the accumulation of savings, investments, and financial activities within the middle-income group adds to the reservoir of available funds for lending by financial institutions. These funds are subsequently utilised to extend loans to individuals, businesses, and governments, effectively spurring economic activity and fostering growth. Therefore, a strong middle-income group is paramount to keeping the economy afloat and supporting crucial central government operations.

We looked on the economic side, now let us explore the social impacts of a shrinking middle-income group. Research from the International Monetary Fund (IMF) in the article Higher Growth. Lower Crime?” (Plotnikov, 2020) on Central America reveals that more robust economic conditions aid in reducing crime and corruption. Having established this inverse relationship between economic activities and crime and the impact of a strong middle-income group on economic growth, it is safe to apply it to the Jamaican society.

Living in a country with less value-added jobs despite historically low unemployment rates, coupled with modest public sector wage increases and rapid increases in prices have induced financial burdens on the middle-income earners and, together with systemic weaknesses, incentivised criminal activities such as embezzling, lottery scamming, and murders. If economic conditions further deteriorate, leading to a less robust middle-income group, crime could also rise.

Ultimately, a thriving and larger middle-income group is expected to translate into less crime and violence and boost economic growth. However, continued surges in commodity prices, costs of borrowing, and home prices will adversely impact middle-income households as they try to adjust by significantly shifting their consumption patterns. Supporting a thriving middle-income group is expected to improve the socio-economic conditions of the country, which will also result in less brain drain and increased investments. In light of this, it is vital that governments and private sectors, both locally and internationally, tailor policies that will strengthen the endangered middle-income group and even bolster low-income groups.

Possible solutions include providing more affordable housing solutions; making financial literacy mandatory; improving the quality of and access to public health care, education and skills training; and implementing tax relief to middle-income earners so as to better facilitate essential spending, saving and investing. Improving benefits such as paid sick, maternity and paternity leave and government-funded pension schemes; and encouraging sustainable growth in the economy through private and public equity investments are also recommended.

The implementation of these suggested solutions is anticipated to support middle-income groups and aid in elevating low-income individuals. Without sounding too utopic, these are the necessary steps to accelerate Jamaica’s progress to achieving Vision 2030 and stymieing the history of recurrent social ills in our society.

Melissa Foster is research analyst at VM Wealth Management Limited. She is fervent about local and regional economic growth, and her primary focus is on evaluating the effects of macroeconomic changes on the financial sector and the wider economy.