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Reuters/Jeff Haynes
Even when everyone has access to modern “luxury” items, inequality is still a problem.

The inequality that matters most (hint: it’s not income)

By Allison Schrager

Income inequality in the US has increased in the last few decades, but inequality and well being are different. If everyone is living better than before, the fact that some people are much better off isn’t necessarily a bad thing. The recent inequality has been a problem because, at least in income terms, a few have prospered while most stagnated. But income does not tell us much about living standards. Anecdotally it seems like living standards increased for everyone since the 1970s. Once, hardly anyone had air-conditioning, now everyone has mobile phones. Others argue the poor are struggling like never before.

An article in the latest version of the Journal of Economic Perspectives finds that Americans’ consumption has become more unequal too: The amount high-earning Americans spend grew much more than that of low income earners in the last 30 years. But that does not mean low earners are worse off. The figure below shows the share of low and high earners who own goods that used to be considered luxury items. Despite more inequality, low income Americans have better access to dishwashers, laundry, and entertainment goods.

So where does the increase in spending inequality coming from? To some extent it comes down to quality—high earners are more likely to have sub-zero refrigerators and multiple large screen TVs. Low earners also spend much less on food. The figure below charts a large increase in equality in money spent on food—even after including food stamps.

The difference in food spending between the rich and poor has widened since the 1970s. It probably reflects that poor Americans consume lower quality food, contributing to higher rates of obesity and early mortality.

There’s also a widening disparity in leisure. All Americans work fewer hours than they used to, but low earners work much less than before. Leisure inequality followed the opposite trend of income inequality, where the poor work less and the rich work more. More leisure time would seem to make the poor better off because leisure is presumed to be preferable to work. But it is not clear if the decline in work is voluntary or from fewer opportunities. If low earners are working less because they have fewer hours offered to them, more leisure is another indicator of polarization and families struggling to get by. The study also considers difference in quality time. Everyone is enjoying more active leisure time (volunteering and sports), but less educated Americans are spending most of their new leisure time passively (sleeping, watching TV).

The data from the study suggest high earners not only have more income relative to low earners, but also more material well-being. Even if they aren’t spending as much, in many ways low earners are better off too. They have access to more goods and leisure time than ever before, though each appear to be lower quality than what high earners consume. And while income and wealth may not factor directly into economist’s measure of well-being, widening income disparities can mean a thinner financial cushion, greater insecurity, and more stress.

Correction: an earlier version of this story claimed the article was published in the American Economic Review, it is in the Journal of Economic Perspectives