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Online Extra: The Economics of the Poverty Business


The spread of subprime lending has made it easier for low-income consumers, many with bad credit, to acquire houses, cars, computers, and credit cards. But after factoring in higher interest payments, the final price tag for these products soars. The poor, as the saying goes, pay more. The cost of living on a low income has produced a number of recent studies—and sparked a policy debate on how to reduce the high cost of being poor. Here are some of the several studies offering insights into the poverty business.

A new study by The Brookings Institution in Washington uses Federal Reserve data and an analysis of more than 12 million credit reports to illustrate how the supply of credit in lower-income markets has dramatically increased in recent decades. The effect: rising indebtedness among lower-income households, and a growing struggle among those borrowers to pay bills.

A 2006 study by Brookings documents the higher costs paid by lower-income families across a broad range of goods and services—from auto insurance to appliances. The report argues that reducing the cost of living for lower-income families by 1% could add $6.5 billion in new spending power to the economy.

In The State of Working America, 2006/2007, researchers from The Economic Policy Institute in Washington present an exhaustive analysis of the nation's working families. Among the study's key findings: stagnant wages among lower-income workers despite rising productivity, growing income inequality, and less upward mobility for workers on the bottom rungs of the economy.


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