The Effect of Pay-For-Performance Compensation and Wealth Derived Income on the Growth-Income Inequality Relation in the US

44 Pages Posted: 31 Oct 2011 Last revised: 2 Sep 2014

See all articles by Amir Rubin

Amir Rubin

Simon Fraser University (SFU) - Beedie School of Business; Reichman University

Dan Segal

Reichman University

Date Written: July 1, 2014

Abstract

The paper analyzes the relation between growth and income inequality in the US during the post-war years (1953–2008). We show that the income of the top income groups is more sensitive to growth, defined broadly as current growth and changes in expectations of future growth, compared to the income of the lower income groups. This increased sensitivity arises for two reasons: the top income groups receive a large portion of their income from wealth, which is more sensitive to growth than labor income, and the top income groups receive a large portion of their labor income in the form of skill-based performance pay, which is also sensitive to growth. Consequently, we conclude that growth and income inequality are positively associated.

Keywords: GDP, growth, income inequality, stock market return

JEL Classification: E240, F430, G190

Suggested Citation

Rubin, Amir and Segal, Dan, The Effect of Pay-For-Performance Compensation and Wealth Derived Income on the Growth-Income Inequality Relation in the US (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=1951485 or http://dx.doi.org/10.2139/ssrn.1951485

Amir Rubin (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Reichman University ( email )

P.O. Box 167
Herzliya, 4610101
Israel

Dan Segal

Reichman University ( email )

P.O. Box 167
Herzliya, 4610101
Israel

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