High Inequality = High Unemployment

The US economy has had the highest sustained level of unemployment since the Great Depression of the 1930’s. One reason for this has been the significant increase in income inequality as there is a redistribution of income from low income families to high income families. When you consider the proportion of income that is spent by both groups you will find that the lower income groups consume a much greater percentage of the their income than their higher income counterparts. Therefore we take more consumption out of the economy with slower growth and ultimately a loss of jobs = higher unemployment. Here is a clip from Paul Solman of PBS.

2 thoughts on “High Inequality = High Unemployment

  1. Simon

    The importance of consumption. This man got it 30 years ago. Keynes also understood the unfairness and negative economic consequences of income inequality and how it reduced in demand.

    If the minimum wage is set too low society picks up the consequences and cost of this. If you can’t afford to pay people a decent living wage you do not have a business. And if you make large profits by paying low wages you are effectively being subsidized by the government in the first instance and exposing the government to the long term costs of poverty and the country to the economic drag caused by income inequality as described in the video above.

    Many of the principles underlying neoclassical economics were dreadful mistakes and they should be recognized as mistakes. The proponents of neoclassical economics have a lot to answer for.

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