Inequality, the Great Recession and slow recovery

Barry Cynamon and Steven Fazzari

Cambridge Journal of Economics, 2016, vol. 40, issue 2, 373-399

Abstract: Rising inequality reduced income growth for the bottom 95% of the US personal income distribution beginning about 1980. To maintain stable debt to income, this group’s consumption-income ratio needed to decline, which did not happen through 2006, and its debt-income ratio rose dramatically, unlike the ratio for the top 5%. In the Great Recession, the consumption-income ratio for the bottom 95% did finally decline, consistent with tighter borrowing constraints, whilst the top 5% ratio rose, consistent with consumption smoothing. We argue that higher inequality and the associated demand drag helps explain the slow recovery.

Date: 2016
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Working Paper: Inequality, the Great Recession, and Slow Recovery (2014)
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