Finally, comparing incomes across countries at different levels of development represents an enormous challenge. For example, one obviously cannot even afford the most basic food and shelter in the United States at $2 a day, the World Bank's definition of non-poor. The United States places its poverty line at $13 a day, more than six times higher than the World Bank measure.
There's a Better Way to Measure the Middle Class
It is obvious, then, that we need a better way of measuring the middle class. Here's where the passenger cars come in. Cars are big-ticket items that indicate the ability and willingness to purchase many other nonessential goods. Indeed, while the vast majority of households own a car in advanced countries, in developing countries owning a car symbolizes relative affluence. While one can define the middle class in many ways, car ownership is an unambiguous indication of the ability to purchase other luxury goods.
Critics may contend that measuring car ownership excludes households that can afford, say, a computer, TV set, or air-conditioner, but not a car. However, because cars in circulation in the developing world are often of very old vintage -- for example, the average passenger car in India is 20 years old, compared with 11 years in the United States -- this supposed omission is not nearly as large as it seems. In the United States, for example, one can buy a 20-year-old Ford Taurus for about $500, about the price of a new computer or TV set. The older cars in circulation in developing countries can be bought for even less. So even for the purpose of assessing potential demand for many less expensive consumer products, the ability to buy a 20-year-old or a 30-year-old car provides a pretty good benchmark.
So, Where Is the Middle Class?
Source: Ward's World Motor Vehicle Data and authors' calculations
Cars in circulation can provide a measure of the number of middle-class households, but a little math is required to arrive at the number of middle-class individuals. We can't just extrapolate based on the average household size in developing countries, as middle-class households tend to be smaller. In India, for example, the average size of middle-income households is 4.3 people, compared with 5.3 in all households. In other major economies, however, such as Brazil and China, the difference in family size between middle-income households and the national average is very small.
After correcting for household size, measuring car ownership suggests that the middle class in developing G-20 countries is in the range of 550 million to 600 million people -- about 50 percent larger than the number arrived at using the Milanovic-Yitzhaki definition.