Mankiw writes on the subject drawing mostly on the supply and demand of skilled v. unskilled labor. Why does it seem that economic growth and income inequality be so closely related? What is the correct way to think about this relationship? I’m open to comments, but here are my thoughts as well (beyond Tournament pay, marginal income tax rates widening pre-tax incomes, and the fact that we are not measuring the same people over time):
2) We measure growth and inequality according to arbitrary geopolitical borders over arbitrary intervals of time, which give us arbitrary results. Growth has very important implications for cost-of-living via land prices which artificially inflate income inequality measures.
3) The poor are drawn to areas of high income growth where they improve their standard of living, but drive up inequality measures. Suppose there are two open check-out lines at Wal-Mart. One line has a highly motivated and efficient cashier where customers are moving very quickly through, the second line has a very very old cashier who is also partially blind so customers move through very slowly. Which line is the longest? The first line with the fast cashier, as people at the end of the line in the second move to the first.