The Welfare State and the Middle Class in Southern Europe Under the Crisis

The recession and the austerity have exacerbated structural trends in the labour market profoundly affecting the stability of the middle class in Southern Europe. At the same time, reductions in social spending has constrained the capacity of welfare states to function as shock absorbers. While in the US “the squeeze of the middle class” has been the subject of considerable research, in Europe similar research remains limited. The aim of the proposed paper is to contribute to filling this gap by analysing how the middle classes have been affected by income losses in recent years in four South European countries: Italy, Greece, Spain and Portugal. The paper presents the results of a longitudinal analysis of income losses suffered by South European middle classes based on an analysis of the EU-SILC panel dataset. The data cover panel rotations from 2005 to 2015, allowing us to identify the impact of the financial crisis. The paper maps large year-on-year reductions of individual earnings and household income in terms of size, duration, and time profile (L- or U-shaped). Moreover, the paper looks at the extent to which income drops were mitigated (or reinforced) by changes in (i) labour earnings of other household members (including of adult children living in the parental home), (ii) other market incomes (e.g. rents), and (iii) social transfers (such as unemployment benefits) received by the household. The predicament of the middle class under the crisis will be compared and contrasted to the previous period, and to the performance of other social groups in the same countries. Finally, the paper will elaborate on the most relevant implications of these results for the analysis of the impact of the crisis on income redistribution, and of the redistributive and protection capacity of current social welfare systems in South European countries.