Does a rising tide lift all boats? Liberalization and real incomes in advanced industrial societies

Abstract

Many scholars argue that liberalization increases both economic growth and income inequality in developed economies. However, there is limited research on how liberal economic policies shape the earnings of different income groups in the national economy. The current study thus attempts to fill this gap in the literature by examining a panel dataset of 15 advanced industrial societies during the years 1970–2010. According to the results, long-run measures of liberalization increase the incomes of the top 0.1%, but does not return significant results for the incomes of the top 1.0% and top 10%. Furthermore, no discernible effect of liberalization is observed for the incomes of the bottom 90%. When taken together, although most researchers focus on inter-group inequality by examining how liberalization augments the incomes of top earners vis-à-vis bottom earners, the evidence of this study indicates scholars should also focus on intra-group inequality among top earners, as liberalization seems to benefit only a very small segment of elite earners in the national economy.