Inequality_fall2009

Inequality_fall2009 - Lecture 14 Economic growth for all...

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1 Lecture 14: Economic growth… for all? Class has focused on average living standards (income per capita). But, how is this wealth shared, and how has this changed over time? Two eras: Declining inequality (1890-1940) and then dramatically rising inequality (1970-2000). – How do we measure inequality? What are the underlying economic mechanisms? A tentative look at the 19 th century. Inequality low at founding of the country, rose during era of big business. A brief introduction to income distributions
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2 Household Income % of individuals who make less than (more than) the specified income A brief introduction to income distributions 10% 90% 50% = median $35,000 $10,000 $100,000 0.1 0.2 0.5 0.3 0.4 Income % of individuals One representation of increasing income inequality 10% 90% 10% 90% Income inequality increases when: (a) ratio of income at high percentile (here: 90) to low percentile (here: 10) increases (b) income levels of the rich grow faster than income levels of the poor. ** DIVERGENCE $10,000 $8,000 $100,000 $120,000
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3 Wage growth by percentile of the wage distribution, 1963-1995 Widening of the male earnings distribution. Bottom 30%: No wage growth. Top 30%: ~40% wage growth. 50% increase Percentile of the income distribution, 1963 Wage growth by percentile of the wage distribution, 1963-1995 Unlike men, women experienced positive wage growth at all percentiles. But women’s wages also become more unequal. Percentile of the income distribution, 1963
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4 Inequality has become an issue in past presidential campaigns “We still live in a country where there are two different Americas ... one, for all of those people who have lived the American dream and don't have to worry, and another for most Americans, everybody else who struggle to make ends meet every single day” - John Edwards, Speech to Democratic National Committee, 2004 Understanding inequality in historical perspective
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