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Has Widening Inequality Promoted or Retarded US Growth?

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  • Gary Burtless

Abstract

The United States has recently enjoyed faster economic growth than any other large industrialized country. The US also has the highest level of inequality among the G7 countries and has seen inequality increase faster than most other industrialized nations. The combination of rapid American economic growth and high and rising US inequality raises a question: Has rising inequality contributed to rapid US economic growth? This paper reviews modern theories linking inequality and economic growth and concludes that a relatively old theory suggested by Arthur Okun probably accounts for the recent combination of US growth and inequality. The country imposes fewer restrictions on economic agents and provides less help to people in distress. It makes fewer sacrifices in efficiency to achieve economic equality. Okun's theory has little difficulty explaining why these distinctive policies are associated with faster employment growth and higher average hours of work than are observed in other wealthy countries.

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  • Gary Burtless, 2003. "Has Widening Inequality Promoted or Retarded US Growth?," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 185-202, January.
    • Handle: RePEc:cpp:issued:v:29:y:2003:i:s1:p:185-202
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    References listed on IDEAS

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    1. Lerman, Robert I & Yitzhaki, Shlomo, 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-156, February.
    2. Meyer, Bruce D. & Rosenbaum, Dan T., 2000. "Making Single Mothers Work: Recent Tax and Welfare Policy and Its Effects," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 1027-1062, December.
    3. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1063-1114.
    4. Maria J. Hanratty & Rebecca M. Blank, 1992. "Down and Out in North America: Recent Trends in Poverty Rates in the United States and Canada," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 233-254.
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    2. Florence Jaumotte & Carolina Osorio Buitron, 2020. "Inequality: traditional drivers and the role of union power," Oxford Economic Papers, Oxford University Press, vol. 72(1), pages 25-58.

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