On Income, Race, and Consumer Behavior

Abstract

ECONOMISTS AND SOCIOLOGISTS are in general agreement that the consumer of Blacks differs from that of Whites. However, there is no consensus as to the cause of this difference. Using Chicago Tribune data, Feldman and Star (1) sought to determine if the consumer of Blacks differs from that of Whites because of cultural factors or if the difference is merely manifestation of the low socio-economic status of the Negro and thus not really distinctive (2). Feldman and Star compared Black and White consumers with respect to race, income, and eleven aspects of non-food shopping behavior (3). The comparison was made by using a simple cross-classification analysis, applying the Chi-square test of significance against null hypothesis of 'no difference' (4). The results of this comparison are summarized in Table 1. Interpreting their findings, Feldman and Star stated that for the sample as whole, there are statistically significant differences between Whites and Negroes .. . However, they went on, This substantial difference tends to disappear when income is considered . (5). Because of this, Feldman and Star concluded that differences in the consumer of Blacks and Whites are by-product of socio-economic factors and not race per se. Feldman and Star's analysis is empirically sound and their findings are consistent with the evidence presented. However in comparing the consumer of Blacks with that of Whites with the same income, Feldman and Star implicitly accepted the income hypothesis. As result, the validity of their conclusions depends, to larger degree, on whether or not this theory best explains the income/consumption relationship and withstands testing. The absolute income hypothesis was first advanced by John Maynard Keynes who believed that men are disposed, as rule and on the average, to increase their consumption as income increases . (6). The cornerstone of the absolute income hypothesis is the notion that the fraction of current income household devotes to consumption is determined by the absolute level of that income. Consumption spending rises or falls as income does, though not necessarily by the same amount, and poor families generally devote higher proportion of income to consumption than do rich ones.