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The effects of economic growth on income inequality in the US

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  • Rubin, Amir
  • Segal, Dan

Abstract

The paper analyzes the relation between growth and income inequality in the US during the post-war years (1953–2008). We show that the income of the top income groups is more sensitive to growth, defined broadly as current growth and changes in expectations of future growth, compared to the income of the lower income groups. We provide evidence that this increased sensitivity arises for two reasons: (a) the top income groups receive a large portion of their income from wealth, which is more sensitive to growth than labor income and (b) the top income groups receive a large portion of their labor income in the form of pay-for-performance (equity compensation), which is also sensitive to growth. Consequently, we conclude that growth and income inequality are positively associated.

Suggested Citation

  • Rubin, Amir & Segal, Dan, 2015. "The effects of economic growth on income inequality in the US," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 258-273.
  • Handle: RePEc:eee:jmacro:v:45:y:2015:i:c:p:258-273
    DOI: 10.1016/j.jmacro.2015.05.007
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    More about this item

    Keywords

    GDP; Growth; Income inequality; Compensation; Stock market return;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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