If you want more income inequality, you should try to attract more innovators to your state. If you want less income inequality, you should try to attract more lobbyists.
Innovation is a major cause of growing income inequality, according to a new study published by the National Bureau of Economic Research. The study shows that states with a higher number of patents per person have higher levels of inequality. Innovation, the study says, is responsible for 17 percent of the increase in the richest 1 percent’s income share between 1975-2010. The amount of innovation in a given state does not appear to affect other income levels.
Interestingly, the rise in inequality has been smaller in states where more money is spent lobbying the government.
The study also found that innovation is related to greater upward social mobility, meaning that it helps low-income families rise into the upper-class. This effect on economic opportunity is largely driven by new innovators, not old ones. States with more lobbying have less of this positive mobility effect.
The study had five co-authors: Philippe Aghion of Harvard University, Ufuk Akcigit of the University of Pennsylvania, Antonin Bergeaud of the Banque de France, Richard Blundell of University College London, and David Hemous of INSEAD.
The authors related their findings to economist Joseph Schumpeter’s concept of creative destruction, where new, innovative methods or products replace the old, leading to economic growth.
They also suggested that high inequality in the top 1 percent of income-earners might dampen innovation, but did not examine that fully.
