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Explanations of increasing inequality and distribution-growth dynamics

Jörg Mayer Division on Globalisation and Development Strategies UNCTAD. Geneva Circle on Global Economic Governance: “Increased Income Inequality without Employment Growth: Causes and Remedies” Geneva, 24 April 2012. Explanations of increasing inequality and distribution-growth dynamics.

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Explanations of increasing inequality and distribution-growth dynamics

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  1. Jörg Mayer Division on Globalisation and Development Strategies UNCTAD Geneva Circle on Global Economic Governance: “Increased Income Inequality without Employment Growth: Causes and Remedies” Geneva, 24 April 2012 Explanations of increasing inequality and distribution-growth dynamics

  2. Causes for persistent cross-country differences in levels of income distribution • Stage of development and economic structure • Kuznets’ inverted U-curve … • … which may need to be augmented because of post-industrial stages, such as finance, and because of strong global forces • Important role of distribution of production factors, in addition to returns on them • National preferences regarding social welfare and individual responsibility

  3. Common factors driving long-term changes in income distribution across countries Global trends of income inequality measured within countries (peak 1920s; trough end of 1970s) with turning point in 1980-1981 due to: Global finance (Galbraith) Reagan-Thatcher-inspired policy shifts

  4. More specific factors driving changes in within-country income distribution Skill-biased technological change (quasi consensus in early-1990s debate) Trade and outsourcing through entry of low-wage economies and decline in transport and communication costs (affecting middle incomes) Finance Top incomes move with prices of financial assets Over-expanded financial sector causes macroeconomic volatility Policies (macro, taxation, transfers, social services, labour market)

  5. Distribution-growth dynamics Traditional view: higher inequality spurs savings, capital accumulation and growth (including through reinvested profits) Newer view – lower inequality fosters investment and productivity by promoting: Education Socio-economic stability Reconciliation of two views if, as economic development advances, relative importance of physical capital accumulation decreases and that of human capital increases

  6. Thank you !joerg.mayer@unctad.org

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