Why the wealthy do not understand income inequality

The US is one of the most unequal developed countries in the world.

President Obama has called it “the defining challenge of our time,” and the World Economic Forum named income inequality the top economic trend to watch for 2015.

Some people at the upper end of the spectrum, however, don’t see the problem.

For a study published last month in Psychological Science, University of Kent postgraduate researcher Rael Dawtry commissioned over 600 US adults to take online surveys for two separate studies to gauge their impressions of income distribution among their social circle and among the larger US population. In one study, they estimated the percentage of people who fell into 11 different income bands, and in the other, they estimated the average income of people in each quintile.

Then, they were asked to share their thoughts on the fairness of income distribution in the US and how satisfied they were with that distribution. They were also asked some questions to try and gauge their attitudes regarding redistribution of that wealth.

The researchers found a link between the participants’ own income, the income of their social circle, and how they felt about redistributing wealth in the US.

From the study’s press release:

Starting with household income, the researchers found evidence for a chain of associations: Household income was linked to estimated social-circle income, which was linked to estimated population income, which was linked to perceived fairness, which was finally linked to attitudes toward redistribution. This chain-like relationship remained even after the researchers took participants’ political orientation and perceived self-interest into account.

The researchers also analyzed data from over 4,000 voters in New Zealand, which similarly showed people’s impression of economic fairness in the country was connected to the wealth of their neighborhoods.

To put the findings simply: Many wealthy people don’t consider income inequality to be an urgent problem because they hardly see any of it in their everyday lives.

If you have the money to do it, you probably move to a clean, safe neighborhood with excellent schools for your kids. Your neighbors are likely of a similar social class with sufficient means to make the same choices you made, and your kids’ classmates and weekend soccer teammates are your neighbors’ offspring. Even if you haven’t deliberately sought to make friends with other wealthy people, circumstances repeatedly throw you together, and the lives you observe are roughly similar to the one you lead.

“These results suggest that the rich and poor do not simply have different attitudes about how wealth should be distributed across society; rather, they subjectively experience living in different societies,” Dawtry said in a press release. “In the relatively more affluent America inhabited by wealthier Americans, there is perhaps less need to distribute wealth more equally.”

This article is published in collaboration with Business Insider. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Libby Kane is the personal finance editor at Business Insider. 

Image: A vacant, boarded up house is seen in the once thriving Brush Park neighborhood with the downtown Detroit skyline behind it in Detroit, Michigan. REUTERS/ Rebecca Cook