Over at VoxEU, Christian Broda argues:
Conventional wisdom says globalisation has increased US income inequality. This column says that is dead wrong, as China and Wal-Mart have increased the purchasing power of the poor more than the rich.
He explains:
Inflation differentials between the rich and poor dramatically change our view of the evolution of inequality in America. Inflation of the richest 10 percent of American households has been 6 percentage points higher than that of the poorest 10 percent over the period 1994 – 2005. This means that real inequality in America, if you measure it correctly, has been roughly unchanged. And the reason is just as dramatic as the result. Why has inflation for the poor been lower than that for the rich? In large part it is because of China and Wal-Mart!
Poor families in America spend a larger share of their income on goods whose prices are directly affected by trade – like clothing and food – relative to wealthier families. By contrast, the higher your income, the more you spend on services, which are less subject to competition from abroad
