Sunday, November 4, 2012

Krugman - Sources of Inequality

So I messed up last time and posted on Easterly. Here is my post on Krugman to make up for it.

I decided to look more into the sources of the rise in inequality Krugman discusses.

Reed and Cancian (2001) find that  female earnings became more equal over the 1970s and 1990s, while male earnings became more unequal. These changes in male earnings accounted for a significant portion of the increase in inequality in the US during this period.

Male and Female Earnings Inequality 1970s-1990s

Another interesting finding from the literature was that economic volatility increases inequality. This makes sense if the poor are the ones laid off or forced to sell off resources during business cycles and can never fully recover.

In Aghiom and Williamson (1999), they find that the volatility of real GDP accounts for 22.7 percent of the differences in the level of inequality between countries. This makes an understanding of how to prevent business cycles more significant. Volatility is significantly more explanatory than inflation and growth in per capita income. They do also show, however, that growth in income does lead to more inequality. This shows that everyone does not benefit equally from economic growth.

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