Income Inequality Affects the Psychological Health Only of the People Facing Scarcity
Following the “status anxiety hypothesis,” the psychological consequences of income inequality should be particularly severe for economically vulnerable individuals. However, oddly, income inequality is often found to affect vulnerable low-income and advantaged high-income groups equally. We argue that economic vulnerability is better captured by a financial scarcity measure and hypothesize that income inequality primarily impairs the psychological health of people facing scarcity. First, repeated cross-sectional international data (WVS: 146,034 participants; 105 country-waves) revealed that the within-country effect of national income inequality on feelings of unhappiness was limited to individuals facing scarcity (≈ 25% of the WVS population). Second, longitudinal national data (SHP: 14,790 participants; 15,595 municipality-years) revealed that the within-life-course effect of local income inequality on psychological health problems was also limited to these individuals (< 10% of the Swiss population). Income inequality by itself may not be a problem for psychological health but rather a catalyst for the consequences of scarcity.