How do income inequality, automation, and unequal access to education shape the spread of knowledge and productivity growth?
In a recent Juncture seminar, Dr Debasis Bandyopadhyay (University of Auckland Business School) shared insights from his research published by the European Economic Review.
Bandyopadhyay’s work bridges economics, politics, and public policy — revealing how stronger social cohesion can lower inequality and lessen the need for redistributive policies. A must-watch for anyone interested in inclusive capitalism, productivity, and the future of economic systems.
Abstract by Dr Debasis Bandyopadhyay
Income inequality, sustained by unequal privileges to private education and parental networking, interacts with increased automation led by artificial intelligence (AI) to reduce knowledge diffusion, undermining sustainable growth and macroeconomic wellbeing. These macroeconomic dynamics link four well-documented global trends: (i) capital-ownership concentration due to automation, (ii) rising income inequality, (iii) slower knowledge diffusion, and (iv) declining labour productivity growth, offering new insights into growth-and welfare-enhancing redistributive policies.
We find empirical support for our theory that higher inequality arising from unfair competition hampers knowledge diffusion to lower the economy’s social knowledge stock, thereby hindering children’s learning from the existing know-how. Consequently, greater social heterogeneity in knowledge absorption capability reduces the average productivity growth rate. Progressive redistribution helps counteract these adverse effects. However, the OECD data indicate that redistributive policies undermine social cohesion. Promoting social cohesion across different groups with different histories promotes knowledge-sharing with trust. It reduces the need for divisive redistributive policies because it mitigates inequality due to unequal access to knowledge, which, in turn, acts both as a productivity multiplier and an income equalizer.
In our recent European Economic Review publication, we find that the optimal redistributive policy for maximising the macroeconomic wellbeing requires a less progressive redistribution in societies with more social cohesion. This new finding transcends the doctrine of a growth-inequality trade-off and the divisive left-versus-right political debate that stems from that trade-off. Less progressive redistribution may, ironically, lower inequality by promoting social cohesion.
Presenter
Dr Debasis Bandyopadhyay is a Senior Lecturer in Economics at the University of Auckland Business School. Bandyopadhyay was the first faculty member in the Business School to receive the Marsden Research Grant Award from the Royal Society of New Zealand. His recent publications in A/A*-ranked journals include Journal of Economic Growth (A*), Journal of Macroeconomics (A), Economic Modelling (A), Macroeconomic Dynamics (A), and European Economic Review (A*). He co-authored a highly cited Victoria University working paper with Harvard Professor Robert Barro, and a textbook titled Principles of Macroeconomics in New Zealand with Harvard Professor N. Gregory Mankiw.