A good friend (Suzanne Bates) pointed me to this provocative and insightful article in The Washington Post from May 18, 2009 entitled "Poor? Pay Up." The article carefully documents many of the ways in which the poor pay more for the same goods and services that higher income households consume. The clever opening line is, "You have to be rich to be poor."
The author looks at the cost of groceries, laundry, financial services, housing, transportation, and the substitutability between time and money. An insightful quote in the article comes from Professor Randy Albelda
in the Economics Department at the University of Massachusetts at
Boston, who notes, "When you are poor, you substitute time for money."
One of the key insights that jumped out at me was that the poor are a relatively costly segment of society for businesses to service. Put differently, the supply side of the markets in which the poor participate has relatively high costs.
Another key insight is that fixed costs play a big role in the cost differential between rich and poor. You have to have a down payment to own a house or a car. You have to have a job to get most conventional financial services. I thought that the author of this article did a very good job of outlining the most salient characteristics of why the poor pay more for many goods. This would be a good theory paper to work on.
One of the key insights that jumped out at me was that the poor are a relatively costly segment of society for businesses to service. Put differently, the supply side of the markets in which the poor participate has relatively high costs.
Another key insight is that fixed costs play a big role in the cost differential between rich and poor. You have to have a down payment to own a house or a car. You have to have a job to get most conventional financial services. I thought that the author of this article did a very good job of outlining the most salient characteristics of why the poor pay more for many goods. This would be a good theory paper to work on.
Ian Fillmore sent me a link to an interesting paper by Christian Broda, Ephraim Leibtag, and David Weistein in the Spring 2009 volume of the Journal of Economic Perspectives. Using U.S. price data and claiming that it has some serious weaknesses, they claim the opposite opinion. They find that the poor pay less for the goods they consume than do the rich. Thanks for the tip, Ian.