Income inequality in America is the highest in decades, and the highest of all high-income countries. It’s also growing rapidly—meaning that, as the saying goes, the rich are becoming richer and the poor poorer.
But just how much bigger the percentage of people living in poverty is becoming may have been underestimated by the official census, according to a new report by the Center on Poverty and Social Policy at Columbia University.
While all official statistics apply the same rate of inflation to the income of people living in all income brackets, evidence highlighted by the study suggests that inflation is much higher for people at the lower end of the income scale. This is a phenomenon that Xavier Jaravel, a researcher at the London School of Economics and one of the author of the report, calls “inequality inflation.” For the bottom 20%, Jaravel has found, inflation is 0.44 percentage points higher than it is for the top 20%.
As a result, the official statistics fail to account for a significant percentage of people living in poverty. That’s because even if a person’s income is officially above the poverty line, their actual income isn’t. For instance, low-income people who don’t have access to government support programs because their income isn’t low enough, end up facing much higher costs of living. For 2018 alone, the last year the report reviews, this calculation would add 3.2 million more people living in poverty in the United States.
And guess what contributes to inequality inflation? Income inequality.
Essentially, the more the income of a top earner grows, the more companies cater to them and compete with each other, driving down the costs of goods for this market. While the market increasingly tries to satisfy the needs of high-income families, it doesn’t do the same with the low-income ones, which end up paying for their products proportionally more than they did before, year by year.
So, even when the overall percentage of people living in poverty (both with the official and adjusted rates) declines, the distance between the two—that is, the percentage of extra people brought into poverty by inequality inflation—has essentially risen steadily since 2005.