Tuesday, December 17, 2013
Jared Bernstein (Center on Budget and Policy Priorities), The Impact of Inequality on Growth:
There are numerous reasons for policymakers and citizens to be concerned about the rise of inequality, not the least of which are its impact on the basic American social contract that says that work pays off; the diminishing of opportunity; the rise in societal unrest; and its impact on political functionality. But the concern of this paper is the impact of inequality on macroeconomic growth.
The review of the evidence suggests that while some of the traditional channels by which inequality affects growth have solid theoretical backing, empirical evidence is elusive. Intuitive and historically verified growth-accounting methods predict that if inequality, through its impact on diminished educational opportunity, leads to a less-well-educated workforce against a counterfactual with less inequality, growth will be diminished. But for a number of reasons stated in the text, there is no correlation, even with the requisite lags between trends in inequality and trends in labor quality.