Economic growth and its effect on income distribution

Abstract

Purpose The main aim of this paper is to examine the effect of economic growth on worker mobility and the effect of this mobility on income distribution. Design/methodology/approach The paper develops an overlapping generation model with multiple categories of labor. In order to confirm the theoretical results and demonstrate that the model can be used for empirical analysis, an example and a simulation were presented. Findings The analysis demonstrates that, as capital stock increase, workers are mobilized up to better jobs, their income grows and income distribution becomes more equalized. Research limitations/implications Endogenous technological improvement and population growth might also be added to the discussion, but at the price of a more complicated model. Discussion on these issues showed be left for future research. Practical implications The effect of tax policy can be easily added to the model and to the discussion. Originality/value This paper extended the overlapping generation model to include different types of individuals. The importance of the paper is in its ability to analyze the changes in the income of various categories of workers along the growth path of the economy.

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