Defining Economic Exclusion in an Era of Extreme Inequality

• In Event: 3154 - Poverty

Abstract

In this paper I consider whether and how measures of economic exclusion, such as the relative poverty rate, should reflect rising inequality at the top of the income distribution. While most scholars of poverty in developed countries adopt a relative definition that identifies someone as poor if they lack sufficient resources to participate fully in “mainstream” society, the definition of “mainstream” has remained unchanged at the national median over the last half-century despite a massive upward redistribution of resources. I argue, based on studies of consumption and firm behavior, that US economic life is no longer centered on the median person. I then propose two modifications to the standard relative poverty metric that allow it to reflect the way the economy has shifted due to rising income inequality in general and income divergence between regions of the country in particular. Trends using the updated measure diverge sharply from those using standard poverty metrics, showing much larger increases in economic exclusion over time and higher rates of exclusion in high income regions.

Author

• Robert Allen Manduca, Harvard University