Inequality Means More Uncertainty During the Giving Season

It’s that time of year again. The trees are dropping their leaves, there’s a nip in the air, and people are bundling up in sweaters. Twinkling lights adorn every streetlight. And the constant ringing of bells signals pleas for charitable donations. The giving season is upon us.

During the holidays, charitable donations increase dramatically — a trend that seems to persist across all income levels. So, it only takes those ringing bells to increase charitable donations, right? Well, aside from the changing seasons, several other factors also impact giving.

Unsurprisingly, wealth is a major factor. To donate money, one must have money to give. It’s also important to consider context — namely, the context of wealth inequality.

The United States has the fourth highest level of inequality among the 35 countries in the Organisation for Economic Co-operation and Development (behind Mexico, Chile, and Turkey), meaning that the gap in wealth among the rich and poor is relatively large. The divide is only widening. So are high-income earners giving more with inequality is on the rise? The evidence is complicated.

According to one study from Stéphane Côté and Julian House at the University of Toronto and Robb Willer at Stanford, high inequality may actually cause richer individuals to be less generous. In their experiment, participants were randomly assigned to learn that economic inequality in their state was relatively high or low.

Then, researchers told participants they’d be paired up with another person to play something called the “Dictator Game.” One person in the pair is assigned the role of “ticket holder” and given 10 tickets to use for a raffle to win a $500 bonus. It’s up to the ticket holder to decide how many tickets to give to their partner, and the number of tickets each participant shares is the measure of their generosity.

The results revealed an interaction between inequality and participants’ income. When inequality was portrayed as relatively low, there was no relationship between income and generosity. But when inequality was portrayed as relatively high, the high-income participants were significantly less generous than their lower-income counterparts.

Why is that the case? Preliminary data from the same researchers suggests that economic inequality may increase feelings of entitlement, but only among rich individuals. In a subsequent survey, the authors measured the extent to which participants agreed with statements of entitlement (such as “I honestly feel I’m more deserving than others”). The data revealed that in states with high inequality, there was a positive relationship between income and entitlement — as income increased, entitlement did, too. But in states with lower inequality, there was no relationship between income and entitlement.

It’s also important to note that lower-income people were equally entitled regardless of the level of inequality around them. But that’s not the case for rich individuals in states with high inequality. And in those states, the relationship between income and generosity — measured by the proportion of income donated to charity — was partially explained by entitlement. That is, richer people in unequal states reported more entitlement and were less generous. This suggests that inequality may reduce generosity among the rich because they feel more entitled to the resources around them.

How do these studies stack up to empirical data? It’s a mixed bag. With inequality on the rise, researchers can look at giving over time, which is what the Institute for Policy Studies did in its 2016 Gilded Giving report. When the study’s researchers measured actual giving from 2003 to 2013, the pattern proved to be more complicated than the experimental evidence would suggest.

Households that earned less than $100,000 annually gave significantly less — on average 34 percent less — money to charity in 2013 than in 2003. What’s responsible for the decline in giving from lower-income donors? The study points to growing economic inequality and insecurity, finding close correlation between the giving trends of lower income donors and measures like labor market participation and home ownership.

Meanwhile, households that earned more than $100,000 annually gave significantly more money to charity in 2013 than 2003. The inflation of giving at the top level of income brackets is astonishing. Households that earned more than $10,000,000 – the top 0.1 percent of earners – give a whopping 104 percent more money to charity in 2013 compared to 2003.

This is an enormous increase in money funneled to charities from the mega-rich. Although it may seem like an admirable trend, this also means that a handful of extremely wealthy individuals determine which causes deserve money and which do not. On top of that, concentrating giving in the hands of a few donors can lead to volatile shifts in charitable donations over time and across causes — both of which could have alarming impacts on philanthropy.

It’s important to note that the context of inequality is shifting between the two studies. The experimental data investigates inequality at the state level while the empirical data collected over time investigates national trends. The local context of inequality may reveal a different pattern than the national context, or they may have separate effects on donation trends.

But we can take away a few key points from these studies. Both sets of data suggest that inequality matters when it comes to shaping generous behavior. And both studies show that inequality’s impact on donations can create a volatile situation for those in need. As we head home for the holidays, let those ringing bells on every street corner serve as a reminder — can we be generous in a time when generosity is most needed?

Jazmin Brown-Iannuzzi is an assistant professor at the University of Kentucky. Her research seeks to understand why disparities (racial and economic) may persist, and in some cases grow. In order to address this question, she uses her training in social psychology, and specifically social cognition, to investigate the psychological mechanisms which perpetuate racial and economic inequalities, and the consequences of these disparities.