Hello
As someone with 0 economics knowledge but keen interest I keep hearing this term “middle class trap” and how it is bad for countries long term economy and its people. What does it mean and why is it harmful for a country’s long term prospects ?
Thank you
In: 467
Countries with low wages have a competitive advantage. That’s why so much manufacturing is done in China, and why western companies have call centers in India. This makes those low wage countries richer, so they can afford to pay higher wages. But as those wages get higher, they are no longer low wage countries, and are middle wage countries, so lose their competitive advantage. This is the middle income trap. To grow to be a high income country, they have to find some other way of being competitive than low wages. And this tends to mean innovating, which generally requires a massive investment and takes a long time.
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