Inequality, the Allocation of Opportunity, and U.S. Economic Growth

Chang-Tai Hsieh, Erik Hurst, Peter Klenow, and Chad Jones have a recent paper on the allocation of talent and US economic growth in which they measure the macroeconomic consequences of reduced “occupational frictions” faced by women and blacks in the labor market and in the accumulation of human capital. They find that reduced frictions account for 15 to 20 percent of growth in aggregate output per worker since 1960.

allocation_of_opportunity

I haven’t carefully gone through the paper but would be quite curious to see (or do) an extension of their work that focuses on bequests, estate taxation, and lower intergenerational mobility.

If having adequate resources and training to be able to enroll and succeed in college essentially requires winning the lottery of birth, i.e. having rich and generous parents, then I’d expect a much smaller talent pool and ultimately lower economic growth. In other words, higher income inequality could lead to lower economic growth if it adversely alters the allocation of opportunity (based on the logic and channels described in the paper above).

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About ozidar

Graduate student at UC Berkeley, studying public finance & labor economics. https://sites.google.com/site/omzidar/
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One Response to Inequality, the Allocation of Opportunity, and U.S. Economic Growth

  1. Pingback: Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children’s Abilities Depend on Parents’ Resources | owenzidar

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