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Does A Rising Tide Lift All Boats? Welfare Consequences Of Asymmetric Growth

Download Now Date Added: Mar 2011
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A common presumption is that increased growth in the aggregate enhances the welfare of both the rich and the poor. The author shows that instead, as the rich get richer, the welfare of the poor may decline if the underlying growth is asymmetric. There are two distinct and complementary explanations: Sector-biased, skill-biased technological change, and second, efficiency improvements in the government sector. In this case, skill-biased technological change in sectors consumed by the skilled rich increases their income beyond the increase in economic wealth, causing a decline in the consumption and welfare of the low-skilled poor. This result stands in contrast to the standard model of skill-biased technological change.