Economics Inequality
Questions
● What is happening to the US economy?
● How can we measure income inequality?
● Why does economic inequality occur?
● What is the importance of income inequality for a society?
● How can we reduce inequality?
Trends of the Income Inequality in the USA
Real GDP in the USA (1947-2023)
,Paradox?
The gap between productivity and a typical worker’s compensation has increased
dramatically since 1979
Productivity growth and hourly compensation growth, 1948-2019
,Real Wage vs. Nominal Wage
Americans’ paychecks are bigger than 40 years ago, but their purchasing power
has hardly budged
Purchasing power has stagnated!
Average annual wages over time, by wage group
, Theoretical Background
Does inequality help economic growth?
The 1970-80s in the US compared to Japan?
Neoclassical Theory- Loanable fund Theory
1. Loanable fund theory of the interest rate
- Sufficient saving is the required condition for investment and growth
- Big government squeezes private investment and growth
2. Keyne’s theory of saving and investment
In what sense, are the two theories different?
The role of inequality for saving and investment
Neoclassical loanable fund theory
↑ inequality → ↑ saving → ↑investment
↓ inequality → ↓ saving → ↓ investment
Keynes’ investment theory
Saving Investment
Because the larger investment, the larger GDP will be, which in turn raises the size of
saving
Relation between Investment and Saving
History of econ thoughts on the topic
“Treasury View” vs. Keynes
Questions
● What is happening to the US economy?
● How can we measure income inequality?
● Why does economic inequality occur?
● What is the importance of income inequality for a society?
● How can we reduce inequality?
Trends of the Income Inequality in the USA
Real GDP in the USA (1947-2023)
,Paradox?
The gap between productivity and a typical worker’s compensation has increased
dramatically since 1979
Productivity growth and hourly compensation growth, 1948-2019
,Real Wage vs. Nominal Wage
Americans’ paychecks are bigger than 40 years ago, but their purchasing power
has hardly budged
Purchasing power has stagnated!
Average annual wages over time, by wage group
, Theoretical Background
Does inequality help economic growth?
The 1970-80s in the US compared to Japan?
Neoclassical Theory- Loanable fund Theory
1. Loanable fund theory of the interest rate
- Sufficient saving is the required condition for investment and growth
- Big government squeezes private investment and growth
2. Keyne’s theory of saving and investment
In what sense, are the two theories different?
The role of inequality for saving and investment
Neoclassical loanable fund theory
↑ inequality → ↑ saving → ↑investment
↓ inequality → ↓ saving → ↓ investment
Keynes’ investment theory
Saving Investment
Because the larger investment, the larger GDP will be, which in turn raises the size of
saving
Relation between Investment and Saving
History of econ thoughts on the topic
“Treasury View” vs. Keynes
