AP, Dayuhan, et al,
Appreciate this discussion...
Some references which might be of interest to you.
Ricardian Model from wikipedia
An American-centric view from the US Congressional Budget Office, Trends in the Distribution of Household Income Between 1979 and 2007, October 2011The Ricardian model focuses on comparative advantage, perhaps the most important concept in international trade theory. In a Ricardian model, countries specialize in producing what they produce best, and trade occurs due to technological differences between countries. Unlike other models, the Ricardian framework predicts that countries will fully specialize instead of producing a broad array of goods.
The rapid growth in average real household market income for the 1 percent of the population with the highest income was a major factor contributing to the growing inequality in the distribution of household income between 1979 and 2007. Average real household market income for the highest income group nearly tri- pled over that period, whereas market income increased by about 19 percent for a household at the midpoint of the income distribution. As a result of that uneven growth, the share of total market income received by the top 1 percent of the population more than doubled between 1979 and 2007, growing from about 10 percent
to more than 20 percent. Without that growth at the top of the distribution, income inequality still would have increased, but not by nearly as much. The precise reasons for the rapid growth in income at the top are not well understood, though researchers have offered several potential rationales, including technical innovations that have changed the labor market for superstars (such as actors, athletes, and musicians), changes in the gover- nance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities.America’s inequality need not determine the future of Britain, By Martin Wolf, December 22, 2011 8:34 pm, Financial Times, www.ft.comAs a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007 (see Summary Figure 3). The share of after-tax household income for the 1 percent of the popu- lation with the highest income more than doubled,climbing from nearly 8 percent in 1979 to 17 percent in 2007.
The population in the lowest income quintile received about 7 percent of after-tax income in 1979; by 2007, their share of after-tax income had fallen to about 5 per- cent. The middle three income quintiles all saw their shares of after-tax income decline by 2 to 3 percentage points between 1979 and 2007.
People will disagree over why rising inequality matters and what should be done about it. I suggest it matters most, at least in the high-income countries because it both undermines hopes for any reasonable degree of equality of opportunity and cements the inequalities in power that have, in turn, allowed the preservation of a wide range of privileges, particularly in taxation.
These outcomes should matter even to those who have no concern for equality of outcome. I would add that some – perhaps a great deal – of the ultra-high incomes at the top are almost certainly the fruit of rent extraction facilitated by a breakdown in the control exercised by principals – outside investors – over their agents – corporate executives and financiers. Huge rewards then are both unjust and inefficient.
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