KYW Regional Affairs Council

“Princes & Paupers”


By Pat Loeb

PHILADELPHIA (CBS) — A number of studies have documented a growth in the gap between high-income and middle-income Americans over the past 35 years.

Read the Congressional Budget Office report, “Trends in the Distribution of Household Income
Between 1979 and 2007″ (.pdf format)

But what is the impact of that disparity on productivity and economic growth?

(Bill Stull. Credit: Pat Loeb)

“The free market always generates a lot of big disparities in income and wealth — it always has,” notes Temple University economics professor Bill Stull (right).  He says disparities in income, up to a point,  provide motivation, which is good for the economy.

“People feel that if they work hard, if they get themselves well educated, if they choose occupations that are difficult, they’ll be rewarded.  And of course we want people to do that,” Stull notes.

The question is, at what point does income inequality begin to work against economic growth?  Supply siders say there is no such point.  Demand siders think the flatter the income distribution, the better, because the middle class drives growth.

But most economists believe there is a point somewhere in there for optimal growth, though they don’t know where it is.

David Elesh believes the Metropolitan Philadelphia Indicators Project, on which he works, provides evidence that income inequality is already working against the regional economy.  He says the local workforce is not as productive as it could be because income barriers prevent many from getting the education they need to fill jobs — or even to get to a job.

(David Elesh. Credit: Pat Loeb)

“Seventy percent of jobs are now outside the city, so lack of a car meant that you did not have (access to) income,” Elesh (right) notes.

He says that’s bad not just for the carless but for the economy that could be benefitting from them.

Listen to the podcast…