The middle class has been difficult to define because there isn't a universal definition of the middle class. The middle class has only been identified based upon an income range while taking to valuable consideration the poverty line of a country and its median income.
What I'm about to present in this article is a simple and casual look at what it means to belong to the middle-income earners in a country like the Philippines, which itself is attempting to reach upper-middle-income status in the next one or two decades.
The power of Overseas Filipino Workers (OFWs) in keeping the economy afloat has been complemented by the recent breakthrough by the Business Processing Outsourcing (BPO) Industry. The strong BPO force of the Philippines has generated over a million jobs in the past half-decade it is expected to even generate over a million jobs after this year alone.
This tremendous job creation and generation fuels domestic income growth for the Filipino citizen, but does it directly correspond to an increase in the bulk of the middle class of Filipinos?
The average monthly income for a Filipino is roughly 300 US dollars (about 14,000 Philippine pesos) and the average monthly income for a Filipino household is roughly 20,000 Philippine pesos. And if you compare these two figures to what an average call center employee gets - 15,000-25,000 pesos for starters, then you see that there is somewhat a correlation.
But whether or not the BPO industry has created a way to increase the number of Filipino households living in the middle-income category is not the main concern here - it is to give you a glimpse of what being in the middle class means in the Philippines. Are 20,000 pesos per household really enough to not only acquire necessities but also afford a few luxuries as well? Is there really a clear picture of the middle class in Filipino society, or is the majority of the population really living under low income? Is the wealth gap in the Philippines that tremendous? I'm hoping to shed some light on these questions, but let's first get a little bit of a macroeconomic perspective.
A Macroeconomic Perspective
A good measure of how a country's citizen measures up to every one else in the planet financially is the GDP per capita. While the Philippines has emerged in the last half decade as one of the brightest spots in Asia in terms of GDP growth, this macroeconomic achievement has hardly been felt by most of its citizens. This is one of the reasons why the current administration, despite having been able to produce a very good economic performance, is unable to sell its own endorsed candidate to the masses for election.
The economic achievement on the large scale just hasn't trickled down to the most basic human level, which is why there are still a lot of people living below the poverty line and most especially people belonging to the low income range (which is where most people belong).
You can always point to the GDP per capita figure on this one and you'll also find that the Philippines is similar to China and India - countries which rank quite high on GDP and GDP growth but rank low on GDP per capita. The main culprit for why these countries rank low on GDP per capita is the incredibly high population - but then this overpopulation would also tell you that there's a dense workforce present in these countries which is why their GDP growth is high.
So how can the Philippines really build a strong population made up of middle-income earners when it is limited by its own historical economic trend and its large population? It is simply done by closing the wealth gap. There was this one teacher of mine back in college who distributed this handout that had one statement that said 'two-thirds of the riches of the Philippines belong to 1 percent of the population.' Now I don't know how statistically true this figure was, but when you think about the elite families of the Philippines, you know in your heart this statement is somewhat true.
Economically, the Philippines isn't like the United States of America at all. Of course, USA is the largest economy in the world and the Philippines merely belongs to what they call the 'emerging markets'. But just by looking at the richest people in America and comparing it to the richest people in the Philippines gives you a good story.
In the Philippines, there is Henry Sy (who belongs to Forbes 100 Richest), John Gokongwei, Enrique Razon, and Lucio Tan. In the USA there is of course Bill Gates, Warren Buffett, and wait - Mark Zuckerberg. Zuckerberg is one type of rich guy the Philippines will never have, and that is because in order to become super-rich in the Philippines you must have a good family name, and who the hell knew the name Zuckerberg 15 years ago?
A Typical Middle Class Filipino
The macroeconomic scene won't give you the picture of a middle-class Filipino citizen, but it sets the limits on what a middle-class Filipino can really afford. Let's now take an example of a typical middle-class Filipino citizen.
Marissa is twenty-eight years old and she works at a national government agency with her rank-and-file position that earns her 25,000 pesos per month. She has a husband who is an entrepreneur who rakes in 22,000 pesos a month and they both have three kids. Their combined monthly income is 47,000 pesos and that translates to 564,000 pesos per annum. Assuming they live in Manila, and let's say they spend 10,000 pesos on housing rent/mortgage, 6,000 on utilities, 15,000 on food and 6,000 on transportation, that leaves 10,000 pesos left for whatever kind of lifestyle.
But then this 10,000 pesos appears very small when you think about the cost of education. Marissa and her husband will be lucky enough to be able to send their kids to state-funded institutions that are also high profile, so as not to compromise on education quality - but most of the time for middle-class Filipinos there will be education expenses. Typically, a private school offers 20,000 pesos for tuition per semester, and so that translates to 5,000 per month. And what if all three kids of Marissa went to private school all at the same time? They would need to spend 15,000 pesos in tuition alone which means they would be 5,000 pesos more in debt per month. They would need to restructure their entire budget or really opt to send their kids in public school instead.
What you see here is the middle-class Filipino family doesn't have enough flexibility on its expenses, especially when they live on a place with high living costs. There isn't that much room for luxury. And you can add on Marissa's list of expenses a steady Internet connection which is at least 1000 pesos per month - because internet is no longer considered a luxury these days. What about regular family eat-outs on Fridays and on Sundays after mass? What about traveling at least once a year? What about upgrading your living room?
More and more these days, the typical middle income earning households cannot afford luxuries without incurring debt. And the debt disease is quite the epidemic in the Philippines where people face an unending debt cycle made popular by Americans.
Is it up to the government to make the middle class richer, to bring more households to the upper middle-income status and to lessen the ever-growing wealth gap? Well, most of the burden really falls on the government. Not only is it tasked to generate more jobs and increase the benefits of the poor, but it also has the heavy burden of attracting foreign direct investments (FDIs), and it is on FDIs that the Philippines has failed on a macroeconomic scale.
The Philippines is dead last on its ASEAN counterparts on attracting FDIs. FDIs actually not only generate more money, but it is also responsible for generating more quality jobs. It isn't really on unemployment that the country is having major problems with - it is actually on under-employment, hence the very low wages for middle-income earners in comparison to the rest of the world.
A Growing Wealth Gap
Even the Salary Structure for government employees paints a good picture of the growing wealth gap. Salary Grade 17 for example rakes in 30,000 pesos a month for the middle-of-the-pack rank and file employee while Salary Grade 33 brings in 160,000 a month for the executive. That's a 130,000 pesos a month difference which translates to over one and a half million pesos difference in annual income. The Salary Structure for Filipino public sector workers may be designed well (but still is one of the lowest earning in the world) but employees belonging to the 30,000 peso-income category are lucky enough.
Let's not forget about our contractual workers which have ballooned in size, as it is now the norm for Local Government Units to employ a lot of contractual workers (also called Job Orders) in order to increase the administration party's voter population. A Job Order employee of the LGU typically earns 6,000-9,000 pesos per month, and that kind of income isn't even six percent of the amount an executive earns.
But it is only on the real statistics that the wealth gap is truly obvious. Rappler estimates that only about 150,000 households earn at least 157,800 pesos per month (the rich class) while 12.9 million households come from the combined class of the low income to the lower middle income class which earns in the range of 7890-31560 pesos per month. If you add the poor population to that, there would be 17.1 million households. The middle class, which earns 31560-78900 pesos per month is at around 3.6 million households.
Combining all the figures above, the rich comprise only 0.72 percent of all the households in the Philippines. That's less than one percent of the population earning at least 20 times more than the majority of the population.
What needs to be done in order to address the current prevalent wealth gap? Well, one of the hottest issues for debate during the presidential campaign period was the eradication of contractualization. This means no more Job Orders, and this means more regular employees and hence a higher salary for the common citizen. The hope of the future is that those belonging to the poor and the low income classification will slowly move to the lower middle income class. But that just doesn't seem to be enough. Although it is currently the most realistic, what you would want for the Filipino citizen is to reach at least middle income status and all in all increase the middle class population.
The bigger the bulk of the middle class tends to lead to better economic performance - after all, domestic consumption is fueled by the spending of middle income earners.
Most Common Source of Income
According to Rappler, the most common source of income for a middle class Filipino citizen is Salaries and Wages. This shows you that the typical middle income earner in the Philippines is in the working class. What I'm hoping for in the future is that at least half of the middle class would become financially independent.
But then is that even realistic? Most Filipinos consider their 60's to be their retirement age. The compulsory retirement age after all is 65, and to retire in your early fifties would be considered early retirement. Now what would Mr. Money Mustache have to say about that? Here's a guy who retired at 30 years old, became financially independent, but didn't really retire a rich person. Now with the popularity of his blog and persona, he has been earning a very high income. But his goal from the start was financial independence.
If only the middle class one day would think of becoming financially independent instead of becoming rich as their main goal, then maybe I'd be happier with the way things are here. It's just that since the most common source of income for a middle class Filipino is his salary, then financial independence just doesn't seem conceivable.
Why the Middle Class is Important
The middle class is important to a country because it points to better economic performance. But not only that, the middle class of a country gives the country its own face in what it means to be a citizen of that country.
When we thank about the Japanese, we think of how they don't really need to get a job to live. Subsidies provided for by their government is enough to get them by. When we think about Americans, we think of how deep their medical benefits are and how our little old Phil-Health system measures up. When we think of Europeans,we think of how they can freely venture and tap into their artistic faculties because they don't have to give much shit about earning money for food and shelter.
When you think of a Filipino, you think about how important it is to get a job to simply get by day-to-day. You think of the street vendors and pedicab drivers that need today's money to keep on living tomorrow. When you think of a Filipino, you think of how little our Social Security System provides for our pensioners. When you think of a Filipino, you think of perpetual poverty.
What does it really mean to be a middle class Filipino?
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
Peter on December 31, 2017:
When we thank about the Japanese
typo for " think " at the very last paragraph..
Mona Sabalones Gonzalez from Philippines on April 06, 2017:
This is an excellent article. It truly describes the Philippine economy in terms of distribution to the people, and the huge gaps between the rich and the poor. I always knew of this, but never knew how to articulate it. Your article spells it out so well. I am posting this on my Facebook page.