Economic growth and income equality: Implications of a behavioural model of economic growth for public policy

A behavioural model of the firm and economic growth is presented whereby the level of economic efficiency, the choice of technology, and the rate of technical change, are all affected by firm organization and institutional variables. In this model, high- and low-wage firms can be cost competitive even in the most competitive of product market regimes because of the efficiency effect that relatively high rates of labour compensation can have through their effect on firm organization. From this perspective, improving the material well-being of the relatively less well-off in society need not be at the expense of those who are better off and there need not be a trade-off between more income equality and growth. International datasets are analyzed, lending support to the view.