Third, by identifying the population groups that are vulnerable to poverty, our conceptual framework can also help classify the population into three distinct income (or consumption) groups: the “poor”, the “vulnerable”, and the “middle-class” (alternatively, the “secure” or “prosperous”). By separating out the poor plus the non-poor but vulnerable in the population, this approach offers an appealing basis for defining and identifying the middle class in society. The policy relevance of identifying the middle class is clear for both developing countries and high income countries, but an appropriate definition for the middle class remains elusive.<sup>4</sup> For example, using a money-metric measure, Banerjee and Duflo (2008) define households in developing countries as belonging to the middle class if their daily expenditures are between $2 and $10 PPP (Purchasing Power Parity) dollars. These consumption levels would, however, hardly qualify households for the same economic status in richer countries.<sup>5</sup> Our paper offers a solution to this by defining both the vulnerable and the middle class differently in a common framework of future exposure to poverty, which appears to be the first to do so.

Finally, to the extent that being vulnerable to poverty can be broadly interpreted as a lack of “resilience” to this undesirable welfare status, our paper is also related to another emerging

> 4 Studies employing cross country analysis suggest that a larger middle class results in higher economic growth, better human development outcomes and stronger quality of governance (Easterly, 2001; Loayza, Rigolini, Llorente, 2012). More recently, unequal economic growth in high income countries such as the United States has sparked debates on what comprises the middle class and accompanying questions related to economic mobility (see, e.g., Piketty and Saez, 2003; Burkhauser, Larrimore, and Simon, 2012). In a recent speech on economic mobility, US President Obama considered the middle class as the “engine of... [the US’s] prosperity” for the three decades after World War II and stated that rising inequality and declining mobility in recent years have had harmful effects on the economic, social cohesion, and democracy.  (http://www.whitehouse.gov/the-press-office/2013/12/04/remarks- <u>president-economic-mobility)</u>

> 5 On a related note, Birdsall, Lustig and Meyer (2014) recently propose to call those with a daily income per capita between $4 and $10 the “strugglers” to clearly distinguish them from the middle class. Interestingly, the struggle to define the middle class is not just a matter of academic interest, but has attracted broader public attention in highincome countries including the UK and the US. A recent article in the Financial Times (Donnan, Bland, and BurnMurdoch, 2014) even names those earning between $2 and $10 a day the “fragile middle” to emphasize their precarious living on the brink of poverty. See also the recent articles on this topic in the Financial Times (Coupland, 2014; Tett, 2014), the New York Times (O’Leary, 2013; Porter, 2013), the opinion piece by Krugman (2014), and the online Great British class calculator maintained by the BBC (2013).

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