1. Focus of this class.
Economics problems such as the housing crisis, the disappearance of “good jobs” and the sharp increase in executive pay have attracted considerable media attention in recent years.
What these economic problems have in common is they contribute to increasing economic inequality on multiple levels, thereby leading to a shrinking middle class and growing economic polarization between the haves and have-nots.
Leading Canadian economists have engaged in a joint effort to:
· quantify the extent of increased economic inequality in recent decades;
· study its causes as well as economic and social impact;
· offer policy recommendations.
b) Impact of economic inequality
But does greater economic inequality necessarily imply more adverse economic outcomes per se?
Some degree of economic inequality may be desirable to encourage individuals to acquire skills and complete tasks and for firms to undertake investment. Skill acquisition and investment are key sources of raising living standards.
Increasing economic inequality could also be a symptom of adverse outcomes. For instance, one group of workers might be employed in “good” jobs with opportunities for professional development and career growth vs. other group of workers employed in “precarious” jobs with no such opportunities.
What is different between these two scenarios? In the first example, higher income is used to entire individuals to acquire more skills, while in the second example, some individuals are deprived of such opportunities to begin with.
c) Causes of economic inequality
Our goal will be to identify the underlying causes of the increasing economic inequality in recent decades. To do this, we will dissect economic inequality into its many dimensions.
In some instances, we may reach the conclusion that economic inequality is indeed a cause of an adverse outcome, while in others that it is merely a symptom of another problem.
d) Solutions
Identifying the underlying economic problem, as opposed to targeting the symptom, is key to designing sound economic policies.
2. Structure of this class.
We will adopt a scientific approach to quantifying the degree of economic inequality, discussing its economic and social implications and attempt to identify its causes.
a) Stylized facts
Our first task will be to quantify the increase of economic inequality and to investigate what types of economic inequality are affected most.
b) Economic models
Then, we will use economic models to isolate key relationships that will helps us isolate both the causes and the economic impact of increasing economic inequality.
High school algebra and geometric skills are essential for working through those models.
c) Empirical evidence
The key predictions of the economic models will be checked against empirical evidence.
Analytical skills in analyzing time trends and numerical data.
d) Policy responses
Having a good grasp of the underlying causes could guide economic policy to target the causes not the symptoms.
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