Historically, discussions of income inequality have emphasised cross-sectional comparisons of levels
of inequality of income. These comparisons have been used to argue that countries with more inequality
are less healthy, less democratic, more crime-infested, less happy, less mobile and less equal in economic
opportunity, but such comparisons implicitly presume that current levels of inequality are steady state
outcomes. However, the income distribution can only remain stable if the growth rate of income is equal at
all percentiles of the distribution. This paper compares long-run levels of real income growth at the very
top, and for the bottom 90% and bottom 99% in the United States, Canada and Australia to illustrate the
uniqueness of the post-WWII period of balanced growth (and consequent stability in the income
distribution). The ‘new normal’ of the United States, Canada and Australia is ‘unbalanced’ growth –
specifically, over the last thirty years the incomes of the top 1% have grown significantly more rapidly
than those of everyone else. The paper asks if auto-equilibrating market mechanisms will spontaneously
equalise income growth rates and stabilise inequality. It concludes that the more likely scenario is
continued unbalanced income growth. This, in turn, implies, on the economic side, consumption and
savings flows which accumulate to changed stocks of indebtedness, financial fragility, and periodic macroeconomic
crises; and, on the social side, to increasing inequality of opportunity and political influence.
Greater economic and socio-political instabilities are therefore the most likely consequence of increasing
income inequality over time.
Can Increasing Inequality Be a Steady State?
Working paper
OECD Statistics Working Papers
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Abstract
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