Economic growth affects the social structure. Do the poor benefit from economic growth? On one hand, it is argued that the potential effect of economic growth on poverty rates is offset either entirely or in part by an increase in income inequality. Alternatively, economic growth may reduce poverty by raising the incomes of everyone in society, including the poor. if economic growth leads to increased inequality, then the growth effect on poverty would be tenuous at best.
There appears to be a consensus in the literature that economic growth does not have much of an impact on inequality, because income distributions do not change appreciably over time. There is some evidence that economic growth has reduced poverty in developing countries. Squire (1993) found that a ten percent increase in the growth rate reduced poverty across a sample of countries by 24 percentage points.
There is also evidence that changes in inequality can affect changes in poverty, ceteris paribus. However, rising income inequality could also be associated with declines in poverty rates. This could result from a “burst” in technological change that would create fortunes for entrepreneurs/managers and contemporaneously improve the wages of those at the bottom of income scale.
Moreover, higher skill levels required by new technology create a demand for advanced education and training. An increase in the quantity and quality of education would generate a wider disparity between skilled and unskilled workers--contributing to greater income inequality. A better educated labor force is also associated with declines inpoverty. The poverty rate in 2004 among college educated persons is 4.3 percent compared to 11.9 percent for those who have high school education.
--by Jia Rong
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