On innovation and top income inequality — A Schumpeterian approach

By Siddharth Singh, 8th June, 2015

An NBER working paper series authored by Aghion et al (2015) explores the relationship between innovation and income inequality. The paper shows that there is a positive and significant correlation between innovativeness and top income inequality in the United States. The study shows that innovativeness accounted for around 17% of the total increase in the top 1% income share between 1975 and 2010.

The authors develop a Schumpeterian growth model where growth results from “quality-improving innovations that can be made in each sector either from the incumbent in the sector or from potential entrants.”

The paper’s findings are in line with the Schumpeterian view that more innovation-led growth would increase top income shares and foster social mobility through creative destruction.

The paper can be accessed by clicking this link.

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