Evaluating the Unequal Economy: Poverty Risk, Economic Indicators, and the Perception Gap

Abstract

How do citizens form evaluations of the economy? Defining features of advanced capitalism like income inequality and labor market dualization present a challenge for assessing the health of the economy based on a small set of macroeconomic indicators. This is particularly true for those whose proximity to poverty and precarious labor market position is not always reflected in the official unemployment rate. For those individuals, socio-economic segregation and the geographic concentration of poverty mean that information on poverty is more accessible and more salient than information on macroeconomic indicators which needs to be explicitly sought out. Poverty risk thus shapes how individuals evaluate the economy: at-risk individuals are less likely to rely on conventional indicators of growth and unemployment and more likely to allocate attention to the poverty rate. Analyses of public opinion data from 27 countries provide support for this argument. We further show that those at risk of poverty know less about economic performance by standard economic indicators but offer more accurate estimates of national poverty rates. These novel findings underline the need to depart from familiar indicators and address how unequal economies structure preferences and policy responses.