Abstract
In recent years, more and more attention has been focused on the effects of economic growth and inequality changes on income polarization, as well as on the changes in the middle income class fraction. A significant part of the literature that deals with these issues is focused on polarization indices. However, the polarization indices proposed by researchers do not allow for an assessment of impact of the income distribution changes on the disappearance of the middle income class. Moreover, the general income polarization indices do not allow for assessment of polarization within the distinguished income classes. This study proposes a class of median relative polarization partial indices, which allows for a comprehensive assessment of the median relative polarization over time, within the distinguished income classes, as well as the impact of income distribution changes (its polarization or convergence) on the change of the middle income class fraction (its disappearance or increase). Using Social Diagnosis panel data (a study carried out by the Social Monitoring Council), the proposed new tool has been used to verify the hypothesis of whether changes in the household income distribution in Poland during the years 2005–2015 have led to income polarization within the three distinguished income groups—lower, middle and upper income classes. Empirical analysis shows that despite the lack of overall polarization of incomes in the household population, there was a convergence of incomes in the upper and lower income classes and polarization of incomes within the middle income class. It implies that the income distribution has not been petrified, and as on average individuals in the lower and upper income classes tend to reduce the distance to the median income, whereas the members of the middle income class tend to be pushed out of the middle class. Moreover, the flows of households into the middle income class were higher than the outflows from this class, resulting in economic convergence, i.e. changes in income distribution leading to an increase of the middle income class fraction.
Highlights
In the field of economics, the concept of economic polarization has been used since the eighties of the last century to describe the disappearance of the middle income class in the three class income distribution in the United States
The polarization indices proposed by these researchers do not, allow to assess the degree of economic polarization in the strict sense i.e., the polarization that leads to the disappearance of the middle income class
To assess whether changes in the distribution of income lead to changes in distribution inside and outside the middle class, we proposed to use the median relative polarization index (MRP) partial indices, which are based on the MRP index
Summary
In the field of economics, the concept of economic polarization has been used since the eighties of the last century to describe the disappearance of the middle income class in the three class income distribution in the United States. The notion of economic polarization is frequently used to describe the processes of changes in income distribution, not necessarily leading to the disappearance of the middle income class (Kot 2008). Some researchers believe that the process of economic polariza‐ tion occurs when the poor get poorer and the rich get richer This process does not necessarily have to result in the disappearance of the middle income class. The polarization indices proposed by these researchers do not, allow to assess the degree of economic polarization in the strict sense i.e., the polarization that leads to the disappearance of the middle income class. The class of the MRP partial indices, which allows to assess whether changes in income distribution lead to polarization inside the dis‐ tinguished income classes is presented in Sect.
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