Understanding Piketty: Merit and rent in a growing economy

Enrico Minelli 19 December 2014

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The publication of Capital in the 21st Century (Piketty 2014) has put the issue of growth and redistribution back at the centre of the economic debate, both in academic and in policy-oriented discussion.

Almost every commentator has praised Piketty and his coauthors for the painstaking work of data collection on the long-run evolution of income and wealth. Their interpretation of the data, and even more so their predictions of further trends have, understandably, given rise to interesting debates.

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Topics:  Poverty and income inequality Productivity and Innovation

Tags:  growth, Inequality, endogenous growth, capital share, innovation, saving, rent

Inequality is bad for income growth of the poor (but not for that of the rich)

Branko Milanovic, Roy van der Weide 29 November 2014

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Concerns about income inequality are ethical and political as well as economic. Ethically, rising inequality – particularly that in of favour capital owners who do not labour for their income – is troubling. Politically, conflation of the rich and the powerful undermines democracy and the ‘background institutions’ that Rawls considered essential for a well-ordered liberal society.1 But for economists, it is the economic problems associated with inequality that are of first-order importance. Among those, none is more important than the effect of inequality on growth.

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Topics:  Poverty and income inequality

Tags:  Inequality, economic growth, unpacking inequality

Labour shares, inequality, and the relative price of capital

Loukas Karabarbounis, Brent Neiman 25 November 2014

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At least since Kaldor (1961), the constancy of the labour share of income has been considered one of the key foundations underlying macroeconomic models. In Karabarbounis and Neiman (2014a), we documented a global decline in the share of labour compensation in gross income (‘gross labour share’) since 1975 and emphasised the role of declining investment prices for this trend. Piketty (2014) and Piketty and Zucman (2014) also discussed this factor share movement and linked it to increases in the capital–output ratio.

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Topics:  Global economy Poverty and income inequality

Tags:  capital, labour, labour share, Inequality, income inequality, wealth inequality, depreciation, interest rates

Growth, inequality, and social welfare: Cross-country evidence

David Dollar, Tatjana Kleineberg, Aart Kraay 19 November 2014

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Concerns about inequality are at the forefront of many policy debates today. From speeches by US President Barack Obama to the bestselling book Capital in the Twenty-First Century by Thomas Piketty, it is hard to escape the view that rising inequality poses major challenges in advanced economies. In the developing world too, much has been written about the adverse effects of high and rising inequality on the pace of poverty reduction.

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Topics:  Poverty and income inequality

Tags:  Inequality, social welfare, economic growth

High marginal tax rates on the top 1%

Fabian Kindermann, Dirk Krueger 15 November 2014

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Recently, public and scientific attention has been drawn to the increasing share of labour earnings, income, and wealth accruing to the so-called ‘top 1%’. Robert B. Reich in his 2009 book Aftershock opines that: “Concentration of income and wealth at the top continues to be the crux of America’s economic predicament”. The book Capital in the Twenty-First Century by Thomas Piketty (2014) has renewed the scientific debate about the sources and consequences of the high and increasing concentration of wealth in the US and around the world.

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Topics:  Labour markets Poverty and income inequality Taxation

Tags:  tax, tax rates, marginal tax rates, Income tax, wealth tax, Inequality

Monetary policy and long-term trends

Charles A.E. Goodhart, Philipp Erfurth 03 November 2014

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Introduction

There has been a long-term downward trend in the share and strength of labour in national income, which is depressing both demand and inflation. This has prompted ever more expansionary monetary policies. While understandable, indeed appropriate, within a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance (leverage).

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Topics:  Financial markets Macroeconomic policy Monetary policy

Tags:  monetary policy, Inequality, debt, leverage, wages, labour share, globalisation, consumption, propensity to consume, fiscal policy, Ageing, interest rates, investment, asset prices, housing, house prices, exchange rates, global crisis, mortgages, sub-prime crisis, Macroprudential policy, structural reforms, balance sheets, deleveraging, equity, shared-equity mortgages, Help to Buy

Home prices since 1870: No price like home

Katharina Knoll, Moritz Schularick, Thomas Steger 01 November 2014

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For economists there is no price like home – at least not since the global financial crisis. Fluctuations in house prices, their impact on the balance sheets of consumers and banks, as well as the deleveraging pressures triggered by house price busts have been a major focus of macroeconomic research in recent years (Mian and Sufi 2014, Jordà et al. 2014, Shiller 2009).

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Topics:  Economic history Financial markets

Tags:  housing, house prices, global crisis, land prices, transport costs, transport revolution, land-use restrictions, zoning laws, Inequality

Exploding wealth inequality in the United States

Emmanuel Saez, Gabriel Zucman 28 October 2014

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There is no dispute that income inequality has been on the rise in the US for the past four decades. The share of total income earned by the top 1% of families was less than 10% in the late 1970s, but now exceeds 20% as of the end of 2012 (Piketty and Saez 2003). A large portion of this increase is due to an upsurge in the labour incomes earned by senior company executives and successful entrepreneurs. But is the rise in US economic inequality purely a matter of rising labour compensation at the top, or did wealth inequality rise as well?

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Topics:  Poverty and income inequality

Tags:  wealth inequality, wage inequality, Inequality

Offshoring and skill-biased technical change

Daron Acemoglu, Gino Gancia, Fabrizio Zilibotti 30 September 2014

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Offshoring, the demand for skill, and biased innovations

The rapid rise of offshoring has been one of the most visible trends in the US labour market over the last three decades. Despite its prevalence, the implications for wages and skill premia are still debated (see, for instance, Grossman and Rossi-Hansberg 2008 and Baldwin and Robert-Nicoud 2014).

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Topics:  International trade Labour markets Poverty and income inequality Productivity and Innovation

Tags:  offshoring, skill-biased technical change, Inequality, wages, technological progress, innovation

Finance sector wages: explaining their high level and growth

Joanne Lindley, Steven McIntosh 21 September 2014

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Individuals who work in the finance sector enjoy a significant wage advantage. This wage premium has received increasing attention from researchers following the financial crisis, with focus being put onto wages at the top of the distribution in general, and finance sector wages in particular (see Bell and Van Reenen 2010, 2013 for discussion in the UK context). Policymakers have also targeted this wage premium, with the recent implementation of the Capital Requirements Directive capping bankers’ bonuses at a maximum of one year of salary from 2014.

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Topics:  Financial markets Microeconomic regulation

Tags:  Bankers’ bonuses, banking, wages, Inequality, UK, regulation, asymmetric information, Executive compensation, Finance, task-biased technological change, ICT

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