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Growing Income Inequality as a Challenge to 21st Century Capitalism

Author

Listed:
  • Josef C. Brada

    () (Arizona State University)

  • El-hadj Bah

    () (University of Auckland)

Abstract

Income inequality has increased in both developed and developing countries, and this growing inequality is in large part due to a shift in factor shares in favor of capital and to the detriment of labor. Factor shares have varied systematically over the post-World War II period, rising until the late 1970s and then falling until now. Explanations for the decline in labor’s share include technical progress, globalization, a decline in labor’s bargaining power, and increasing energy prices. These drivers of income change are likely to persist for the foreseeable future, meaning that income inequality will continue to increase. We show that growing inequality tends to reduce political stability and the ability of governments to protect citizens against predation and also to reduce education attainment. Since good institutions and education are key drivers of the growth of total factor productivity, growing inequality thus poses a serious risk for the capitalist system.

Suggested Citation

  • Josef C. Brada & El-hadj Bah, 2014. "Growing Income Inequality as a Challenge to 21st Century Capitalism," a/ Working Papers Series 1402, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  • Handle: RePEc:ais:wpaper:1402
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    References listed on IDEAS

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    Blog mentions

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    1. Disuguaglianza e demografia: castriamo i poveri!
      by Alberto Bagnai in Goofynomics on 2014-09-07 20:12:00
    2. Il nuovo filosofo di Treviri
      by Alberto Bagnai in Goofynomics on 2014-10-10 11:51:00

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    Cited by:

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    3. Simplice A. Asongu & Jacinta C. Nwachukwu, 2017. "Foreign Aid and Inclusive Development: Updated Evidence from Africa, 2005–2012," Social Science Quarterly, Southwestern Social Science Association, vol. 98(1), pages 282-298, March.
    4. Simplice A. Asongu & Oasis Kodila-Tedika, 2018. "Institutions and Poverty: A Critical Comment Based on Evolving Currents and Debates," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(1), pages 99-117, August.
    5. Simplice A. Asongu & Jacinta C. Nwachukwu, 2016. "Rational Asymmetric Development, Piketty and Poverty in Africa," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 13(2), pages 221-246, December.
    6. Simplice Asongu, 2014. "A brief clarification to the questionable economics of foreign aid for inclusive human development," Working Papers of the African Governance and Development Institute. 14/028, African Governance and Development Institute..
    7. Asongu, Simplice & Nwachukwu, Jacinta, 2017. "Recent finance advances in information technology for inclusive development: a survey," MPRA Paper 79638, University Library of Munich, Germany.

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    More about this item

    Keywords

    factor shares; labor incomes; globalization; technological progress; energy; economic growth;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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