Middle class leads loss of income in the pandemic and drives inequality

The middle class lost the most income during part of the coronavirus pandemic, which led to increased income inequality in Brazil. Among the poorest, incomes remained virtually unchanged, thanks mainly to the payment of Emergency Aid.

During the period, the traditional concentration of income was maintained in richer states and in areas of the Federal District, where there is a preponderance of well-paid civil servants with stable employment —although the majority, with the exception of the military, have not been subject to salary increases since 2017.

According to unprecedented data from FGV Social based on 2020 Income Tax returns and IBGE surveys, the middle class (Brazilians located between the poorest 41% and the richest 10%) lost 4.2% of their income in the first pandemic year.

In the richest 10%, many of them residents of wealthy areas of the Federal District (such as Lago Sul and Lago Norte) and traditionally wealthy cities such as Nova Lima (MG), São Caetano do Sul (SP) and Florianópolis (SC), the drop in yields was much lower, 1.2%. Among the poorest 40%, there was practically stability (gain of 0.2%).

According to Marcelo Neri, director of FGV Social, contrary to what was imagined, due to the Emergency Aid that reached up to 67 million people, income inequality did not fall in the country in the first year of the pandemic —but it was pushed up by account of the impoverishment of the middle class.

Using the same method as that of the French economist Thomas Piketty, author of the best-seller “Capital in the 21st Century”, and joining the IRPF database to that of the Continuous PNAD (National Household Sample Survey), FGV Social calculates that the Gini index reached 0.7068 in 2020, well above the 0.6013 calculated by the IBGE, which uses only the Continuous Pnad. For the calculation of the Gini, the closer the index is to 1, the greater the inequality.

According to Neri, the IRPF is better able to capture income from capital gains, such as profits in the financial market or distributed by companies, including legal entities that declare via Simples. Therefore, it brings more realism to the income of the richest.

By the usual approach, the Gini would have fallen from 0.6117 to 0.6013; already in the combination of bases, the indicator rises from 0.7066 to 0.7068.

The work of FGV social also sought to identify the geographic location of the most affluent groups in the country. As in poverty studies, there is a comparison of the income of the richest in relation to the population as a whole and the calculation of the average income of the population (by states and municipalities) taking into account the income of IRPF taxpayers divided by the population —from in order to identify the more or less rich places.

“The objective is to know the wealth of the entire population, not just the richest among the rich”, says Neri.

With a large concentration of civil servants, the Federal District ranks at the top of the average income ranking among the Federation Units: R$ 3,148. It is more than double the national average income (R$ 1,310) and is well above the state of São Paulo, the most economically dynamic region in the country, with R$ 2,093.

The Federal District is also the Federation Unit with the highest declaration of wealth per inhabitant (R$ 95 thousand), led by Lago Sul (R$ 1.4 million), which also has the highest average income in the country (R$ 22,583 ).

Another five areas of the Federal District, such as Lago Norte, Park Way and Jardim Botânico, have an average income higher than that of the best-placed city in the country, Nova Lima (MG). Since at least 2018, the mining town linked to mineral extraction and home to several luxury condominiums has appeared at the top of the richest municipalities.

According to FGV Social, among the 19 richest municipalities, the highest variation in income between 2019 and 2020 was also found in Nova Lima (22.38%). One of the hypotheses is that the rise in commodity prices until the pandemic influenced the increase in wealth in the city of Minas Gerais, as well as in other cities more dependent on the mineral and agricultural sectors.

In the opposite direction is São Paulo, where income fell 12.8%. The hypothesis here is that this occurred because the city concentrated large portions of the middle class.

Studies by other consultancies have shown that the middle class shrinks year after year. According to a Tendências survey, the so-called classes C and B (family income between R$ 3.1 thousand and R$ 23.2 thousand) were reduced from 47.6% of the population to 41.6% between 2012 and 2022.