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6 Ways Income Inequality Is Making Your Life Worse

President Obama will focus on the growing gap between rich and poor in tonight's State of the Union address. Here's why you should listen.

Photo Credit: makler0008


President Barack Obama will focus on what he has described as "the defining challenge of our time” during the State of the Union address on Tuesday: the nation’s growing gap between the rich and poor. What economists saw as a temporary aberration in the early 1970s — the first time since the end of World War II when the incomes of lower- and middle-income Americans failed to keep pace with those of the rich — has in the intervening 40 years become a full-blown crisis.

From 1979 to 2007, the top 1 percent of families experienced a 278 percent increase in their real after-tax income, while families in the middle 60 percent saw  an increase of less than 40 percent. During this period, many blue collar jobs become automated by advances in technology, American workers started competing against cheaper overseas labor, and the number of workers represented by unions dropped from 20 percent in 1983 to  11 percent today. As the earnings of lower and middle income Americans stalled, however, CEOs — particularly in the financial industry — saw astronomical economic benefits and, thanks to tax changes in the early 2000s, began paying some of the  lowest tax rates in the country’s history.

Below are the most shocking consequences of this income inequality:

1. Income inequality will force you into debt.

As the wealthy become wealthier, they create an “economic arms race in which the middle class has been spending beyond their means in order to keep up,” a  2013 study from the University of Chicago’s Marianne Bertrand and Adair Morse concludes.

“What you think you need depends  on the context you find yourself in,” says Cornell economist Robert H. Frank, who has written about the “expenditure cascades.” “And standards tend to be local. When most of the income gains are going to the very top, the people around them feel relatively poorer and spend more because of that.” Lower- and middle-income Americans, in other words, are not forced to buy expensive cares or houses, but they feel pressured to do so, leading to an increase in the personal bankruptcy rate and a plummeting savings rate.

The wealthy bid up the the prices of real estate, create a boom in more expensive restaurants, bars, and grocery stores, and effectively price out their lower-income neighbors or force them to spend more to continue living in the community.

2. Income inequality will make you sick.

Researchers at Harvard University’s School of Public Health found that women living in areas with large gaps between the “haves” and “have-nots” are at greater risk of being depressed and are nearly twice as likely to suffer from depression compared to the women living in areas that have a more equal income distribution.

Meanwhile, though American life expectancy has increased dramatically over past decades, research shows that those gains are going mostly to people at the upper end of the income ladder. Life expectancy of male workers retiring at 65 has grown by six years in the top half of the income distribution but only 1.3 years in the bottom half over the last 30 years, for instance. “Life expectancy has increased mainly among the privileged class,” Economic Policy Institute economist Monique Morrissey told the Washington Post. “For many people, raising the retirement age would  amount to a significant benefit cut.”

The lack of health care providers in poorer communities and lack of education about health care conditions means that lower-income Americans are much more likely to develop and live with chronic medical conditions like diabetes or high blood pressure. A study by the National Urban League Policy estimates that U.S. health care disparities have contributed to  $59.9 billion in excess spending, a price tag that  will fall significantly as lower-income Americans start accessing health care services through the Affordable Care Act’s Medicaid expansion.

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