We, Lithuanians, are already in the middle-income trap

 

Press release

 

“Over the past 20 years, Lithuania has experienced not only rapid economic but also social transformation. Žygimantas Mauricas, Chief Economist at Luminor Bank, comments that upon joining the European Union (EU), the goal of catching up with the wealthy old-timers of Western Europe and living like real Europeans seemed like a nice ambition at the time, but today such an aspiration is gradually becoming a reality. As the economist emphasizes, for the first time in the history of Lithuania, the income of the majority of the population allows them to classify themselves as representatives of the European middle class.

 

"According to preliminary data, the median income of the population of the European Union this year reaches 1880 euros per month. This means that half of Europeans receive less than 1880 euros, and half - more than 1880 euros per month.

 

According to the generally accepted definition, the middle class includes those residents whose income reaches from 60 to 250 percent. of the median income. In the EU context, this means from 1128 to 4700 euros per month. So, it is precisely those who receive such income that can claim to live like average Europeans.

 

And how many such people live in Lithuania? Interestingly, the median income of the population of our country, judging by preliminary data, has increased this year to 1130 euros, which is more than 60 percent. of the median income of the population of the EU (1128 euros).

 

So today, for the first time since our accession to the EU, more than half of the population can claim to live at least like average Europeans. This is an impressive achievement, considering that 20 years ago there were only 2 percent of such residents in Lithuania, 10 years ago – 18 percent, and five years ago – 34 percent.

 

In addition, about 1.5 percent of Lithuanian residents have an income exceeding the 4,700 euro threshold, so the latter can classify themselves as a wealthy class,” Ž. Mauricas points out in his commentary.

 

The economist explains that such a spurt in Lithuania was determined by both the rapid growth of household income and the sluggish progress of some old-established EU countries.

 

"For example, the income of the population of Greece is currently still lower than it was 15 years ago, the income of the population of Spain, Italy and France is only a third higher, Germany is 50 percent higher, and the income of the population of Lithuania has increased more than three times during this period. 20 years ago, the income of the population of our country was on average six times lower than the average EU resident, and currently this difference is less than two times.

 

Such a change means not only growing income of the population, but also a changing lifestyle: greater financial security, economic stability of the country, more responsible consumption, more planning, saving and investing. The middle class is the economic backbone of the country, strengthening the stability and transparency of not only the economy, but also democratic institutions.

 

Representatives of this class tend to consume more responsibly, pay taxes more honestly, invest more, and they also contribute to the sustainable development of the service sector and the housing market. This is a part of society that maintains stability even when there are storms in the global economy, so it is necessary to strengthen it at this time is particularly important,” explains Ž. Mauricas.

 

However, rapid growth is easy to lose, he adds.

 

“Increasing the tax burden, unstable fiscal policy or bureaucratic constraints can become a brake that prevents this class from expanding. Our goal should not be to burden it with additional obligations, but to create conditions for further growth by promoting investment, innovation, learning and a better business climate. The example of Greece shows that progress is not guaranteed, so Lithuania will have to compete with the old EU members in a competitive battle to maintain growth momentum and regional leadership.

 

The strengthening of the middle class is a sign of Lithuania’s economic maturity, which shows that Lithuania is no longer just “catching up with Europe”, but is also becoming an equal player in the EU. This also strengthens the resilience of the Lithuanian economy to possible economic and geopolitical shocks and strengthens the foundations of our democratic institutions,” the economist says in his commentary.”