Inequality and economic growth

Question 1

what is the focus of inequality and economic growth lecture?

Answer 1

Tech progress is a major driver of income inequality. It overviews income inequality,sources of it, and effects of income inequality on economic growth

Question 2

What was the key trend from Milanovic 2018?

Answer 2

15/17 OCED countries saw an increase in disposable income inequality from 1980s to 2015

Question 3

what are the sources of income inequality

Answer 3

Productivity factors:
1. Ownership of physical capital
2. Human capital
3.Geogrpahy/location
4.occupation specific skills/talent

Non-productivity factors include monopoly rents,corruption, deregulation

Question 4

What is the dynamic between technological progress and inequality?

Answer 4

point: within country inequality has rose steadily in most advanced economies, supported by new theory/data

1. Tech progress is skill biased
   new tech favors skilled labor, increasing wages of educated workers, retrtuns on education/entrpenerabilitty goes up
   this means MP of human capital goes up, skilled workers earn more, income inequality up

2.Tech progress rasies returns to capital
benefits those who own capital, not just skills. Tech is often embedded in new capital goods, skills and capital found at higher end of distribution, increasing inequality

Result: higher wages and increased returns on education and capital widens the wage gap because workers with better education and skills capture more of economic pie.
Resource allocation=unskilled workers increasingly value education given the widened wage gap. Countries investment into education increases, workers most to fast growing regions, as tech progress slows returns on physical capital down, income inequality down

Question 5

what are the other factors explaining inequality

Answer 5

3. Increased trade: boosts demand for scare resources, returns on education increase, owners of scare resources benefit
4. superstar dynamics: people with highest levels of some qualities will earn more then those with slightly lower qualities
5. government policy: deregulation, tax policy plays a role too

Question 6

what are the effects of income inequality on economic growth via capital accumulation

Answer 6

Inequality leads to high capital accumulation via

1.rich countries save more then poor
2.greater proportion of income earned by rich=higher savings rate

Result=increase in savings=fuel for investment in capital which leads to higher income per capita via phsycail capital accumulation.

However, countries that are open to international flows:
1. Investment doesn’t need to be financed by domestic savings
2. The effects of inequality on physical capital diminished

Question 7

what are the effects of income inequality on economic growth via human capital accumulation

Answer 7

Inequality means low human capital accumulation

On one side, human capital is “installed” in individuals, poorer people benefit more from education investments
marginal return decreases as human capital increases

problem: if income shifts from poor(who invest in education) to the rich(who have education and stop investing)
total human capital formation falls, lower long term growth

Result(draw graph)inequality may hurt growth by reducing educational investment among poorer households, total HC falls
income decreases, even if country is open to international flows

Question 8

what is the conclusion of the lecture?

Answer 8

There is a lack of data to estimate the individual effects of inequality on growth.

1. no evidence of countries with higher income inequality having high capital accumulation
2. same goes for countries where high income inequality means level of education is lower

Question 9

what about innovation and inequality

Answer 9

Innovation increases top income inequality, by

1. creating good jobs, well paying and secure,
   2.social mobility challenges incumbents
   3.top innovators capture enormous rents, actually increasing top income inequality

Conversely, past innovators could prevent future innovation