Romania’s middle class has grown by 10 percentage points since joining the EU, accounting for 61% of the country’s population in 2023. Despite the growth, the largest in the region, the size of the middle class remains the second lowest in the region after Bulgaria, according to an analysis carried out by Ella Kállai, chief economist of Alpha Bank România.
„The share of the population belonging to the middle class in Romania has expanded to 61% in 2023 from 51% in 2007 (Graph 5). The 10pp increase was the biggest expansion in the region owing to both the reduction in the share of the high-income class from 14% in 2007 to 8% in 2023 and the reduction in the share of the low-income class from 35% in 2007 to 31% in 2023”, the cited analysis states.
Note: The middle class includes that part of the population with an annual disposable income between 75% and 200% of the median annual disposable income. The size of this segment increases if the size of the low annual disposable income class (below 75% of annual median disposable income) and/or the high annual disposable income class (above 200% of annual median disposable income) decreases, in other words if the inequality of income decreases.
The median income means that half of the citizens are above this reference indicator and half are below it.
Revenues in this analysis are expressed in euros, in current prices.
The middle class in Hungary contracted, while in Poland it reached a share of 67%
The middle class in Hungary decreased to 65% in 2023 from 70% in 2007. The middle class is the largest (72%) in the Czech Republic, followed by Poland, where it reached 67% from 60% in 2007.
„Compared to older EU member states such as Greece and Italy, the middle class in the region tends to be larger and income inequality less,” Kállai points out.
Romania’s average annual disposable income reached 31% of the EU average, from 13% before accession
Countries in the region recorded an exceptional increase in the disposable income of the population after joining the European Union, the economist reports.
The average annual disposable income (expressed in euros at current prices) increased in 2023 against 2007 4.8 times in Bulgaria, 3.7 times in Romania, 2.7 times in Poland, 2.5 times in the Czech Republic and 1.9 times in Hungary, exceeding the 1.6 times increase in the EU.
In 2023, the average annual disposable income of the countries in the region reached 43% of the EU average (EUR 10,000 against EUR 23,000), having been only one fourth (EUR 3,700 against EUR 14,700) in 2007.
Romania’s average disposable income in 2023 was 31% of the EU average (EUR 7,100 against EUR 23,000), while in 2007 it was only 13% (EUR 1,900 against EUR 14,700).
Significant decrease in income inequality in Romania and Poland
„During the same period, in the region, the increase in the median disposable income (of the lower-income half of the population) was faster than the increase in the average disposable income only in Romania and Poland, this being an indication of the decrease of income inequality”, the analysis also states.
The graph below shows that Romania is one of the few EU member countries with a small difference between the median disposable income and the average disposable income.
In 2023, the median annual disposable income was 8% lower than the average annual disposable income, with Romania ranking after Slovakia (with a gap of 1%), Belgium and Slovenia (with a gap of 7%).
Evolution of income inequality in CEE
According to the GINI coefficient – the indicator whose value increases when income inequality increases – income inequality in the countries of the region experienced a divergent evolution.
In the analyzed period 2014-2023, income inequality decreased in Romania, the Czech Republic, Poland, Bulgaria (starting from 2020) and was maintained in Hungary. In 2023, the Czech Republic remained the country with the lowest income inequality, and Bulgaria followed by Romania, the countries with the highest but decreasing income inequality.
„It seems that all countries in the region have reached a development phase where there is no trade-off between economic growth and inequality, with a growing share of the population benefiting from the gains of gap recovery compared EU (GDP/capita ratio against GDP/capita in the EU increased in the region, indicating an ongoing process of convergence)”, notes Kállai.
Income inequality fell in Romania: the share of the poor increased, but the share of the rich decreased more
The distribution of population income in 2007 (Graph 3a) and 2023 (Graph 3b) shows that:
- the highest incomes have shrunk and
- the ratio between the income of the richest fifth of the population and the income of the poorest fifth has decreased
The income share of the population percentage with the highest incomes has halved (from 6% in 2007 to 3% in 2023).
In 2007, 5.4% represented the income share of the fifth of the population with the lowest incomes and 44% the share of the fifth of the population with the highest incomes, from which it can be seen that the incomes of the fifth of the population with the highest incomes was 8.2 times higher than the incomes of the fifth of the population with the lowest incomes.
In 2023, the share of the lowest-income fifth increased marginally (6.4%), but the share of the highest-income fifth decreased significantly to 37.4%.
„Subsequently, the incomes of the fifth of the population with the highest incomes were 5.8 times higher than the incomes of the fifth of the population with the lowest incomes, decreasing compared to 2007, above the ratio in the Czech Republic (3.4), the country with the lowest income inequality in the region and below the ratio of Bulgaria (6.6), the country with the highest income inequality in the region”, emerges from the cited analysis.
The pandemic made it more difficult for Romania to advance to a higher income decile
In 2023, pandemic income changes show an increase in the share of those who kept their income (to 30.7% from 27.4%) due to the significant decrease in the share of the population with increasing incomes (to 33.1% from 36.1%) and the marginal decrease in the share of the population with decreasing incomes (to 36.2% from 36.6%).
„This evolution contrasts with that of the countries of the region where the share of those with increasing incomes either increased (Hungary), remained the same (Bulgaria and Poland) or decreased significantly less than the share of those with decreasing incomes (Czech Republic). It seems that in Romania obtaining income increases has become more difficult”, shows the cited analysis.
„While income inequality resulting from differences in talent, effort, and luck is inevitable, excessive income inequality can erode social cohesion, lead to political polarization, and ultimately to low economic growth. Seen from this perspective, the decrease in income inequality compared to the region and the EU with the simultaneous decrease in income inequality in the country is a remarkable achievement of Romania after joining the EU”, concludes Ella Kállai.
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