How Inequality Hurts Wealthy People Too
Ray Williams
9-Time Published Author / Retired Executive Coach / Helping Others Live Better Lives
Summary: (Read the research following)
More than any other advanced nation, the United States is experiencing an increase in economic inequality.
In terms of income inequality, the U.S. has the fourth worst Gini coefficient (or index)amond OECD countries, the most commonly used measure of income inequality. According to a Pew Center study, the growth in income in recent decades has tilted to upper-income households. At the same time, the middle class, which once comprised the clear majority of Americans, is shrinking. Thus, a greater share of the nation’s aggregate income is now going to upper-income households and the share going to middle- and lower-income households are falling. The middle class decreased from 61% in 1971 to 51% in 2019. The top 1% earns forty times more than the bottom 90%. The top 0.1% of income earners own as much wealth as the bottom 90% combined. Since 1990, CEO compensation has increased by 300%. Some hedge fund managers made up to a billion annually, enough to pay the salaries of every public school teacher in New York City.
Top U.S. income earners avoid paying taxes. The 55 U.S. corporations that paid no federal corporate income tax in 2019-2021 have spent a combined $450 million on political campaign contributions and lobbying—including for lower taxes—according to a report published by the progressive advocacy group Public Citizen. A 2015 study conducted by the Citizens for Tax Justice and the U.S. Public Interest Research Group Education Fund found that the largest 500 companies in the U.S. keep more than $2.1 trillion in tax havens.
The average wage of 44% of workers before the pandemic was just $18,000, according to the Economist, and a typical worker can no longer afford to care for a family of four on a year’s salary. While a child born in 1945 had a 90% chance of making more than their parents, someone born in 1985 only has a 50% chance of faring better than them. It’s easier to achieve the American Dream in China, South Africa, and Brazil than it is in the US.
What is the Impact of Economic Inequality on the Wealthy?
The negative effects of economic inequality on the poor and middle classes are well known to all of us. However, the effects on wealthy people have received little attention, possibly because we believe they are unaffected.
But a study published in the scientific journal Nature suggests some provocative answers.
Researchers at Yale University carried out a series of experiments in which participants from around the world were randomly grouped into online networks to play a cooperative economics game. The participants were given an “income” and then had a chance to collaborate by giving up part of their money so that everyone else’s riches would grow up, or to “defect” and pay nothing, while still reaping the fruits of others’ generosity. Afterwards, they learnt how other group members acted and may opt to maintain or cut ties with fellow players.
However, there was a catch: In this setup, the researchers changed the initial income to produce scenarios in which there was no, minimal, or significant wealth inequality within a group. Also, in some groups participants knew about relative wealth levels, whereas in others relative wealth was undetectable.
The researchers then followed what happened in the game as people went through several rounds. Their analyses showed that, when initial wealth inequality was visible to all, cooperation among participants went down, social ties were fewer, and inequality went up over the course of the game. But, if relative wealth was invisible, inequality didn’t have this same effect.
“The surprising thing for us was that inequality was not a corrosive force, but visibility was a very corrosive force and much more important, ” says Nicholas Christakis, a sociologist known for his research on social networks and one of the authors of the study.
Upon further analysis, Christakis and colleagues found that the negative effect of visibility was driven specifically by lower cooperation rates from wealthy participants, who chose not to cooperate with poorer participants. Conversely, when relative wealth wasn’t visible, richer participants were more likely to cooperate, helping to equalize wealth and maintain social connections.
“When you have evident inequality, you get an exploitation scenario, where the rich take advantage of the poor,” adds Christakis. “Inequality itself doesn’t have much of an impact, but the visibility of inequality erodes cooperation, wealth accumulation, and friendliness.”
He suggests that conspicuous wealth may be problematic because of psychological processes related to social comparisons and competitiveness. Though these variables were not assessed in the present study, they have been shown to influence economic behaviour in other studies.
Of course, even if the visibility of wealth inequality is more problematic than inequality itself, it’s pretty tough to imagine a world where one could be separated from the other. Christakis notes that most rich people—at least in the United States—want to display their money, and American culture has a voyeuristic thirst for tracking the fortunes of others.
“We have drones that fly over Oprah’s mansion; we have The Lives of the Rich and Famous [the TV programme], and social media, and so people are aware of the inequality,” says Christakis.
Still, he and his colleagues have some ideas of how their research might be applied to social policy and have a positive impact. He suggests that school uniforms might be a good idea, because they may reduce affluent student awareness of their relative wealth and create more cooperative groups with stronger social ties.
He also suggests that perhaps large pay disparities should be kept secret within a corporation; otherwise, inequality may be corrosive to cooperation and result in less overall productivity. (Of course, this last proposal could be exceedingly problematic: Concealing the facts can address one problem but may cause others, such as rage if the disparities are disclosed.)
He claims that conservatives won't enjoy the fact that obvious disparity leads to the exploitation of the underprivileged. According to Christakis, it’s only when you have visible equality (or invisible inequality) that you create a fair scenario where everyone works together cooperatively. This shows that there may be compelling reasons to redistribute wealth, regardless. Or, at least if we choose to redistribute wealth for other reasons—let’s say to promote better health outcomes, he suggests—no harm will be done to the economy.
Wealthy People are Less Interested in Connecting with Others
New psychological research reveals there’s another victim of inequality: the rich themselves.
In a series of studies, researchers have found that attaining high social status impairs key social and emotional skills. People become less eager to interact with others as a result. It hinders their ability to read other people’s emotions. They become less kind and generous as a result.
This finding carries unsettling implications for wealthy and poor alike: that inequality may be self-perpetuating because as our society develops more unequal, the rich will be less likely to care about the poor. Taken together, these studies suggest why inequality should be a concern for anyone who cares about the health and well-being of American society as a whole.
Wealth Undermines Empathy and Compassion
Indeed, a found that Americans see inequality as the greatest source of social conflict in the country today, eclipsing conflicts around age, race, and immigration. Two-thirds of respondents said there are “very strong” or “strong” conflicts between rich and poor, roughly a 40 percent increase from just two-and-a-half years ago.
Researchers’ concerns about inequality have generally focused on the plight of the poor and the shrinking middle class, exploring how inequality hurts the mental and physical health of the less fortunate.
“There are powerful psycho-social effects of inequality,” says Richard Wilkinson, a British epidemiologist who has spent years researching these effects, which he documents at length in his book, The Spirit Level. “As status differences grow, we worry more about status insecurity, we get widespread anxiety about self-esteem, and that brings rising rates of mental illness and depression.”
It should be noted that at first, researchers anticipated finding these kinds of effects among the wealthy; heart disease was thought to be "the executive's disease," brought on by all the duties of his status.
Instead, they’ve found that increasing status impacts other things of the heart: It makes people psychologically distant from those around them.
For instance, in a study published in Psychological Science, researchers discovered that individuals with higher socioeconomic status (SES) were less accurate at reading others' emotions—a fundamental component of empathy—a skill known as "empathic accuracy."
The study’s primary author, Michael Kraus, believes these results show how higher social status makes people more self-absorbed.
“As you become more wealthy, you become more focused on the self,” he says. "I start to think about all the personal freedoms and opportunities I have relative to others when I think I am higher on the social class ladder than others, and it is this process that makes me less accurate in reading emotions."
But isn’t there a chance that these differences between rich and poor are innate—perhaps the rich get further in life because they’re less preoccupied with other people’s needs?
To test this idea, the researchers—including Dacher Keltner, the Greater Good Science Center’s faculty director—manipulated people’s sense of status, making them feel higher or lower on the social ladder.
People who were temporarily made to feel upper class, regardless of their actual socioeconomic status, had a harder time reading others' emotions; people who were temporarily made to feel lower class, on the other hand, showed better empathic accuracy. This suggests that there’s something about the experience of high status that affects how we connect with others emotionally. In other words, inequality naturally leads to a lack of empathy among the wealthy.
A study by Jennifer Stellar former Greater Good Science Center fellow found that upper-class college students reported feeling less sympathy than other students after watching a video about children with cancer, which provides additional support. The study was published in the journal Emotion. The heart rate of the non-rich students slowed down as they watched the video—a physiological sign of compassion. The rich hearts didn’t show that reaction.
“It’s not that the top classes are coldhearted,” says Stellar, “They may just not be as adept at recognizing the cues and signals of suffering.”
Indeed, research by Kraus and Keltner suggests that the higher classes are less receptive to social cues in general. This study, published in Psychological Science, indicated that college students from wealthy backgrounds appeared less interested in talks than did persons of lower socioeconomic status. Even if the other person was similarly rich, they displayed clear indifference in them by doodling throughout the other person's speech, digging through their backpacks, and regularly checking their cell phones. Even less frequently did they smile or nod in agreement with the other person's comments.
Using only college students in studies like this is frequently considered a constraint. However, in this instance, it demonstrates how the psychological effects of status are so strong that they can even cause people to tune out peers with whom they appear to have a great deal in common. They belonged to the same collegiate community and were roughly the same age, indicating that they did not come from different social galaxies.
This underlines one of the most important conclusions from this entire body of research: The wealthy aren't just less likely to interact with the underclass. They’re less inclined to connect with anyone.
“We’re showing a difference in behaviour, regardless of whom the wealthy are interacting with,” says Kraus. It affects how rich people interact with other rich people and with the poor.
As their position and sense of self inflate, then, the rich risk separating from other people—and that may include people within their class, or even their own family, not to mention those of other classes.
The Greater Good Science Center at the University of California, Berkeley interviewed Dacher Keltner, professor of psychology and Director of the Berkeley Social Interaction Lab and founder of the Greater Good Science Center on the topic of compassion for the wealthy.
Among other things, Dacher stated:
Wealthy People Don’t Read Others’ Emotions Well
Anita Schmalor and Steven J. Heine published a study in Social Psychological and Personality Science, in which they conclude that those with high socioeconomic status read the emotions of others poorly and when people experience economic inequality, they develop a more competitive mindset and, as a result, their emotional intelligence decreases.
The University of British Columbia psychologist Heine, one of the authors of the study, says: “There’s more to gain and more to lose when there’s more inequality; people become more self-focused.” He argues that when resources for lower economic classes shrink and competition for success increases, so does a more self-serving behavior. “What we find is when people see more economic inequality, that makes them behave more like wealthier people,” he says.
Heine says that “economic inequality has been increasing in many countries around the world, especially in the United States. When there’s more inequality, people become less interested in each other,” Heine says. This leads to more criminal behavior, more corruption, and more people willing to cut corners and cheat, he says. “All these situations have been found to occur when people are a little more selfish and self-focused,” he says, and “more competitive and less attentive to their fellow citizens.”
Heine and Schmalor argue that one of the reasons countries with lower inequality experience (eg: Norway, Denmark, Finland) fewer societal problems may be that the people in those countries are more concerned about the welfare and the struggles of others.
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Wealth Can Ruin Happiness
All these conclusions aren’t just bad news for anyone who might experience disinterest and apathy from the privileged. They’re bad news for the rich themselves. The attributes that seem to be harmed by enhanced status are the qualities that research has strongly connected to long-term happiness.
“Being compassionate, having empathic accuracy, being trusting and cooperative—these are keys to social connection and, in turn, happiness,” says University of California’s Paul Piff, whose research was published in the Journal of Personality and Social Psychology found that people of higher socioeconomic status were less willing to share money with a stranger or make charitable donations. (However, when they were made to feel lesser status, they became more charitable; the opposite was true for persons made to feel high status—they grew stingier.)
Indeed, perhaps the dominant finding to emerge from positive psychology research over the past decade is that our happiness (and health) is largely determined by the quality and quantity of our social connections. Perhaps this is why happiness has been so closely associated with "pro-social" activities and emotions like compassion, empathy, and altruism.
These results explain why more money doesn't seem to make people happier once Americans reach an annual income of $75,000. Perhaps after that point, our elevated sense of status comes with negative social and emotional consequences that counteract the positive effects of more money.
Also, one study found that wealthier persons, who were only briefly made to feel wealthy, were worse at savouring everyday pleasures—a fundamental to happiness, according to earlier studies.
According to the authors of that study, which was published in Psychological Science, the results suggest that “the emotional benefits that money gives with one hand (i.e., access to pleasurable experiences), it takes away with the other by undercutting the ability to relish the small delights of daily living.”
But generally speaking, research indicates that having money isn't always a problem. Status is one's position about others in your society.
If money were the problem, the poorest countries would be the happiest, but they’re not. The key, instead, appears to be inequality: The most egalitarian nations, such as those of Norway, Denmark, Finland, and Sweden, are the ones with the highest levels of happiness. Additionally, according to Ron Anderson, a researcher at the University of Minnesota, these nations have some of the highest compassion indices.
Contrarily, nations with greater inequality, such as the US and the UK, have significantly higher rates of health and social issues: According to Wilkinson's analysis, mental illness is three times more prevalent in unequal nations, along with infant mortality rates that are also significantly higher and life expectancy that is also significantly lower. Trust and social cohesion—important variables in happiness—are much greater in more egalitarian societies.
And unfortunately, the upshot of Kraus, Piff, and their colleagues’ research is that inequality may be self-perpetuating: The lack of compassion the rich feel might make them less likely to outlook on the less fortunate, thereby increasing the gap between rich and poor—and the worse this gap gets, the research suggests, the less inclined the rich may be to do anything about it.
When the “Going Gets Tough,” the Affluent Get Lonely
Crises are said to bring people closer together. According to a recent study from the University of California, Berkeley, wealthy people are more likely to turn to material items for consolation than those who are less fortunate do.
According to Paul Piff, at UC Berkeley, his research in the Journal of Personality and Social Psychology. has argued, "In times of uncertainty, we see a dramatic polarisation, with the rich more focused on holding onto and acquiring wealth and the poor spending more time with friends and loved ones."
Five different experiments were conducted, and the results shed new light on how people from different socioeconomic backgrounds may react to both natural and man-made disasters, such as economic recessions, political unrest, earthquakes, and hurricanes. They also aid in explaining why people's reactions to uncertainty and chaos can polarize more during times of upheaval.
For instance, survey participants from the lower class said they would opt to stay close to their friends, family, and coworkers instead of relocating across the country for a higher-paying job. Contrarily, people from the upper class chose to accept the job and sever links with their neighbourhood.
The study claims that material wealth "may be a particularly salient, accessible, and preferred individual coping mechanism... when they are threatened by perceptions of chaos within the social environment," even though it does not offer a conclusive explanation for why the upper class, under stress, places a greater emphasis on material possessions than on interpersonal connections.
Each experiment was done with a different set of ethnically and socio-economically diverse individuals, all of whom indicated their social position (family income and education) as well as their level of community-mindedness and/or obsession with money.
To effectively examine how social class impacts the possibility of people turning to others or riches amid perceived chaos, researchers generated several psychological states in their participants in a lab setting, such as uncertainty, helplessness, or worry.
Chaos is defined in the study as “the feeling that the world is unknown, unpredictable, seemingly random… a general sense that the world and one’s life have turned uncertain and topsy-turvy.” This uncertainty typically triggers either a fight-or-flight or a “tend-and-befriend” response, which researchers used to assess participants' reactions to induced stress.
A nationwide sample of 76 men and women, ages 18 to 66, were asked to choose an online visual graph that best represented the trajectory of economic ups and downs they thought they would likely experience throughout their lifetimes. The results showed that the upper class and, to a little degree, Caucasian participants, were less prone than the lower class and minorities to predict financial difficulty. According to the study, lower-class participants were more prone to seek out community support to deal with perceived disorders in their life.
In the second experiment, 72 college students were asked to compose essays on both favourable and unfavourable elements that might affect their academic experience. Potential threats that they cited included cancelled classes, tuition hikes and academic failures. Again, concerns about disorder and helplessness led lower-class college students—but not upper-class students—to declare that they would seek support from their community.
In the third trial, 77 students were placed through computerized activities in which they rearranged into phrases words that either related to chaos or something unpleasant. This exercise was designed to prime certain participants to see their environment as unpredictable and scary. When these participants were offered five minutes to take part in a community-building task where they could develop friendships with a group of their peers, only lower-class participants jumped at the opportunity.
When made to feel as though the world was chaotic, upper-class participants consistently agreed more strongly with these statements. The fourth experiment had 135 students unscramble similar words into sentences and then report on how much they agreed with statements like "Money is the only thing I can count on" and "Time spent not making money is time wasted."
In the fifth experiment, 115 students were given a fictitious situation in which a potential employer offered them a new position with a higher salary, with the caveat that they would have to relocate and might lose contact with their current network of friends, family, and coworkers. Again, when primed with feelings that the world was uncertain and chaotic, upper-class participants were more amenable to cutting ties and taking the job, whereas lower-class participants opted to stay close to their support networks.
"Given the extremely diverse modes of coping that we witness among the top and poorer classes, our research shows that differences between the haves and the have-nots could grow ever greater in times of economic uncertainty and social instability," Piff said.
Wealthy Individuals Are More Likely to Be Unethical
According to a recent study by Paul Piff, published in the journal Proceedings of the National Academy of Sciences. the upper class has a higher propensity for unethical behaviour and is more likely to think—as did Gordon Gekko in the movie "Wall Street"—that "greed is good."
In seven separate studies conducted on the UC Berkeley campus, in the San Francisco Bay Area and nationwide, UC Berkeley researchers consistently found that upper-class participants were more likely to lie and cheat when gambling or negotiating; cut people off when driving, and endorse unethical behaviour in the workplace.
According to Piff, "the increased unethical tendencies of upper-class people are driven, in part, by their more favourable attitudes toward greed."
The researchers polled more than 1,000 people from lower-, middle-, and upper-class backgrounds about their ethical tendencies to better understand how class influences ethical behaviour. Volunteers completed surveys revealing their opinions on greed and immoral behaviour as well as the MacArthur Scale of Subjective Socioeconomic Status to report their social class. They also participated in exercises meant to gauge how unethical they were.
In two field studies on driving behaviour, upper-class motorists were found to be four times more likely than other drivers to cut off other vehicles at a busy four-way intersection and three times more likely to cut off a pedestrian waiting to enter a crosswalk. In a different study, participants from the upper socioeconomic groups were more likely to admit to imitating the unethical behaviour they were shown than those from the lower socioeconomic classes.
In the fourth trial, participants were given tasks to do in a lab with a jar of candy on hand that was designated for passing kids. Participants were encouraged to grab a few candies. Participants in the upper courses helped themselves to twice as many sweets as did those in the lower classes.
In the fifth trial, participants each were assigned the position of an employer negotiating pay with a job candidate seeking long-term employment. Among other things, they were instructed that the job will soon be removed and that they were free to relay such knowledge to the candidate. Upper-class participants were more likely to deceive job candidates by withholding this information, the study found.
Participants in the sixth study played a computerized dice game, receiving five rolls of the dice before reporting their results. The participant with the highest score would be awarded cash. The game was rigged so that each player would only be awarded a maximum of 12 points for the five rolls, but the players were unaware of this. According to the study, upper-class participants were more likely to report scores that were higher than they actually could have been, indicating a higher rate of cheating.
The most significant predictor of unethical behaviour, according to the most recent study, was attitudes toward greed. Participants were primed to think about the advantages of greed and then presented with poor behaviour-in-the-workplace scenarios, such as stealing cash, accepting bribes, and overcharging clients. Researchers found that once participants were primed to see the advantages of greed, even those who did not belong to the upper class were just as likely to report being willing to act unethically as the upper-class cohort.
According to Piff, the combined findings "have very strong implications for how rising money and prestige in society changes patterns of ethical behaviour, and show that the disparities in social values between the haves and the have-nots help drive these trends."
Are the Wealthy Less Generous?
Researchers and media outlets have frequently questioned whether the wealthy are less giving than the less wealthy over the past few years.
New findings reveal that higher-income people are less generous only when they reside in an area that has high levels of inequality between the affluent and poor. When the wealth disparity between the affluent and poor is small, the wealthy may end up being more giving.
The study, which was released in the Proceedings of the National Academy of Sciences, first examined information from a national poll of approximately 1,500 Americans, which included questions about their household income and home state. The survey also employed a method for measuring generosity that is successful in the past: after notifying respondents that they had won 10 raffle tickets, they were given the option to donate any number of these tickets to a different survey participant (whom they would never meet) who had not received any tickets.
They discovered that those with higher incomes were less giving than those with lower incomes in states with high inequality. The contrary, though, was true in areas with minimal inequality: People with higher incomes were more giving with their raffle tickets. Residents' incomes were unrelated to their degrees of charity in states where inequality was neither very high nor low.
The results raise numerous issues regarding what causes what: Is the stinginess of the rich genuinely accountable for the disparities in states with high inequality? Is it possible that wealthy, charitable people prefer to reside in states with low levels of inequality because those conditions align with their moral principles? Or do wealthy people become less giving as a result of living in a highly unequal society?
The researchers conducted an experiment in which they altered participants' views of inequality in their state to answer these issues. They enlisted over 700 people from all over the country and presented them with (false) information about the degree of inequality in their state. Some people saw information that suggested their state had particularly low inequality, while others saw information that suggested their state had particularly high inequality. The researchers then allowed them to give part of their winning raffle tickets to a stranger, just like in the other trial, after telling them they had won 10 tickets for $500.
The results show that when higher-income people thought they lived in a state with high inequality, they were less generous. However, they were neither more nor less charitable than other people when they were led to believe that their state had low inequality.
This is consistent with findings from earlier research suggesting that, despite sometimes acting less altruistically, wealthy people are not necessarily selfish: In those studies, when wealthy people were made to feel as though they were of lower status, they became more generous, and when less wealthy individuals were made to feel as though they had higher status, they became more frugal. This implies that there might be some aspect of the feeling of increased power and position that makes us less motivated to help others.
What, then, would make wealthy people less giving as a result of experiencing great inequality?
The authors speculate that a sense of entitlement that high-income people experience when their state's income is more concentrated in a small number of hands—"the belief that one is more important and deserving than others"—could be one explanation. They hypothesize that these feelings of entitlement and deservingness may aid high-income individuals in rationalizing their extraordinary good fortune, which may, in turn, lessen their generosity because "people who believe they are more important than others also believe that resources rightfully belong to them."
Because they have further to fall in a highly unequal location, the authors also hypothesize that high inequality may encourage higher-income people to worry more about losing their elevated status and, as a result, hoarding their money.
Indeed, a new study by the Chronicle of Philanthropy found that wealthier Americans donate a substantially smaller percentage of their income to charity than do the middle class, and when a big number of rich people are located in one location, that community’s giving rate is even lower. The wealthy, however, tend to be more giving when they reside in more diverse socioeconomic zones.
Of course, tackling inequality head-on is another strategy for closing the empathy gap. How to do that is a matter of partisan debate. Conservative proposals focus more on breaking down cultural class divides, such as Coming Apart author Charles Murray’s suggestion to eliminate unpaid internships and deceased Senator John McCain’s call for a national service corps that makes people of different social classes work together in the same way that military conscription once did.
Liberals, on the other hand, place a strong emphasis on wealth redistribution and improving the welfare of the less fortunate through corporate regulations that limit the earnings that the wealthiest employees can keep for themselves or by progressive taxes.
In the end, according to Piff, hierarchies are a fact of existence and eliminating inequity is an impractical objective. What counts for the happiness of the rich, the poor, and everyone in between is to prevent the kind of severe socioeconomic inequality we’re seeing in the United States now.
“Runaway inequality makes it tougher for people to relate to those who have different backgrounds than themselves,” he says. "But you're going to go a long way toward bridging the compassion and empathy gap if you're able to lessen the extremes that exist between the haves and the have-nots," the author said.
Bachelor of Commerce - BCom from Nizam College at Hyderabad Public School
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