ABSTRACT
In a provocative article, Gary Becker, the 1992 recipient of the Nobel Prize in Economics, and Kevin Murphy, the 1997 recipient of the John Bates Clark Medal,1 discuss the “upside” of the recent increase in income inequality (Becker and Murphy 2007). They argue that the rise in inequality largely reflects increased demand for educated and highly skilled labor resulting from technological advances and globalization. In short, there has been an increase in the rate of return to human capital investment. Nothing new here. Further, they go on to say that the increase in inequality will ultimately be good for us. Why? An increase in the rate of return to human capital, like an increase in the rate of return to physical capital, represents greater productivity in the economy. In short, the pie will get larger.
