Higher economic inequality intensifies the financial hardship of people living in poverty by fraying the community buffer

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Abstract

The current research investigates whether higher economic inequality disproportionately intensifies the financial hardship of low-income individuals. We propose that higher economic inequality increases financial hardship for low-income individuals by reducing their ability to rely on their community as a buffer against financial difficulties. This may occur, in part, because a frayed community buffer reduces low-income individuals’ propensity to seek informal financial support from others. We provide empirical support across eight studies (sample size N = 1,029,900) from the United States, Australia and rural Uganda, through correlational and experimental data, as well as an instrumental variable analysis. On average across our studies, a 1 s.d. increase in economic inequality is associated with an increase of financial hardship among low-income individuals of 0.10 s.d. We discuss the implications of these results for policies aimed to help people living in poverty buffer against the adverse effects higher economic inequality imposes on them.

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Fig. 1: Theoretical model.
Fig. 2: Financial hardship predicted by the interaction of actual economic inequality and income.
Fig. 3: Financial hardship predicted by the interaction between the economic inequality condition and income.

Data availability

Data are available on the Open Science Framework at the following link: https://osf.io/a3qy8/. We note that the data providers did not allow us to share the data for study 3 and Supplementary Study 1. Access to data for study 3 is restricted by the National Centre for Longitudinal Data (NCLD), and can be obtained by submitting a request to the NCLD. Access to data for Supplementary Study 1 is restricted by Gallup, and can be obtained for purchase from Gallup.

Code availability

The code to reproduce the analyses presented in the current research is available on the Open Science Framework at the following link: https://osf.io/a3qy8/.

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Acknowledgements

We thank C. Prottas for his help in data collection for study 6, and O. Hauser and G. Neszveda for useful discussions. We are also grateful to the Hungarian Fulbright Committee for their support. The authors received no specific funding for this work.

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Contributions

J.M.J. and B.S. contributed to this manuscript equally and are listed alphabetically. J.M.J. and B.S. conceived of the idea and designed the studies. J.M.J., B.S., M.L. and D.S. collected the data and performed the analysis. J.M.J. and B.S. wrote the paper, and M.L., D.S., J.P. and E.U.W. provided critical revisions.

Corresponding authors

Correspondence to Jon M. Jachimowicz or Barnabas Szaszi.

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Peer review information Primary Handling Editor: Aisha Bradshaw

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Supplementary information

Supplementary Information

Supplementary Tables 1–21, Supplementary Figs. 1–4, Studies 1 and 2, and additional results.

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Jachimowicz, J.M., Szaszi, B., Lukas, M. et al. Higher economic inequality intensifies the financial hardship of people living in poverty by fraying the community buffer. Nat Hum Behav (2020). https://doi.org/10.1038/s41562-020-0849-2

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