Economic Growth and the High Wage Economy

4 Why increasing income inequality is not necessary to economic prosperity

Introduction

In this chapter, I discuss the behavioral theory of the firm and induced economic growth, elaborated upon in Chapters 2 and 3, to cast better light on the complex relationship between economic growth and income distribution. Unlike conventional economic wisdom, the analytical predictions of the models presented here are consistent with the stylized facts of economic life. For, unlike the conventional model, the behavioral model does not predict that convergence in real per capita output should be taking place amongst nations through market forces (Chapters 2 and 3) or that there exists a fundamental trade-off between income equality and levels of per capita ...