The Poverty Penalty in France: How the Market Makes Low-Income Populations Poorer

What has come to be known as the poverty penalty – the additional cost paid for goods and services by the poor relative to the more affluent – is a familiar mechanism in emerging countries. For profoundly different reasons, however, poor people in developed countries also suffer from the poverty penalty. Quite naturally, without any particular ill will on the part of the actors in the commercial sector, the market sometimes penalizes the poor by making them pay more than other households, per unit of consumption, for the same goods and services. Drawing on a study by the Boston Consulting Group conducted at the request of the action tank “Entreprises et Pauvreté”, this paper sets out to quantify a part of the poverty penalty. The economic impact is far from incidental, as it represents, at the very least, a “double jeopardy” of an extra 2.5% of the total budget for low-income households, or some €500 –more than a month’s worth of “discretionary” spending. The paper sheds light on the various underlying mechanisms that contribute to the creation of the poverty penalty. These “undesirable side-effects” of the market are of five types: An unfavorable cost structure An unfavorable price structure The law of supply and demand A lack of equipment or an unfavorable risk profile Insufficient objectivity to deal with scarce, imperfect or missing information.The ultimate aim is to favor the development of compensation or annulment solutions through “positive discrimination” actions implemented by businesses; experiments currently under way offer some hope in the fight against the poverty penalty.