Income-inequality figures in the US overstate the gap between the rich and poor because of what’s known as the ‘Wal-Mart effect’. As the number of poor people in a country rises, the market for inexpensive products expands and the purchasing power of the poor increases. In measuring this effect, Andreas Bergh and Therese Nilsson of Lund University in Sweden found that a 10-point increase in a country’s rank on the 0-to-100 Gini scale of inequality decreases the minutes of labour required for the poor to buy a Big Mac by 15 minutes. Income inequality is an inadequate indicator of the welfare of the poor.

(Source: Southern Economic Journal)

Published in Dawn, Business & Finance weekly, November 9th, 2015

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