Trickle-down economic theory, the idea that an increase in riches for the most wealthy will trickle down to everyone else, just doesn't cut it, according to a new report from the International Monetary Fund.
In fact, the study on income inequality says it's trickle-up theory that cuts muster for the economy.
"The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor and lack of financial inclusion in developing countries," the report states
"We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth — that is, when the rich get richer, benefits do not trickle down."
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The solution for income inequality: "focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class," the report says.
"To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive."
Meanwhile, Tim Worstall, a fellow at the Adam Smith Institute in London, offers an interesting argument against the movement to raise the U.S. minimum wage to $15 an hour from $7.25 currently.
"A $15 minimum wage would put all workers in the U.S. into the global 1 percent by income," he writes on Forbes.com
. "Given that the U.S. labor force is rather larger than merely 1 percent of the global labor force this isn’t really going to work, is it?"
Seattle and Los Angeles already have implemented plans to boost the minimum wage to that level. And companies such as McDonald's and Wal-Mart are lifting their minimum pay too, though not to $15.
Worstall goes further than simply endorsing a $7.25 minimum. "In theory I’m against there being a minimum wage at all," he states. "After all, 96 percent of Americans earn more than the current one so there’s obviously something other than just that minimum wage which causes decent wages to be paid."
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