The notion that substantial inequality is a stimulus to growth is extremely questionable. It is noted that a highly impoverished sector of the population reduces the productivity of the labor force. Moreover, the evidence that independent inventors and innovative entrepreneurs as a group receive compensation below those of equally educated employees indicates that disproportionate earnings are a questionable incentive.The relationship between aggregate output and income inequality is central in macroeconomics. This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high- and middle-income countries. Human capital accumulation is an important channel through which income inequality affects growth.
The relationship between aggregate output and the distribution of income is an important topic in macroeconomics (Galor 2011). The role that income inequality plays in economic growth has also received quite a bit of attention in policy circles and the press recently. For instance, the World Bank Group has included among its key global objective for development the eradication of extreme poverty and boosting the incomes of the bottom 40% of developing countries. The IMF has weighed in with a discussion on the role of income distribution as a cause and consequence of economic growth

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