Stability and vulnerability of the Latin American middle class

Using panel datasets from Mexico and Chile for the 2000s, we examine the determinants of middle-class intra-generational mobility. We define the middle class by means of a latent index of economic wellbeing that is less sensitive to short-term fluctuation and measurement error than standard measures of income. We find high rates of both upward and downward mobility in Mexico and Chile, indicating that the middle class has the opportunity to move to higher levels of wellbeing but it is also vulnerable to falling into poverty. In both countries, labour market resources (education and occupational status of the head, number of members in the labour market) are much stronger determinant of mobility than demographic factors, suggesting the importance of policies that foster human capital and that protect workers from shocks. Rural middle-class households are substantially more vulnerable to falling into poverty and have little chance of advancing to upper classes.