How income inequality affects job creation at small and large firms by Sebastian Doerr, Thomas Drechsel, Donggyu Lee published by VOXEU (11/2022)
Income inequality in the US has increased substantially over the past decades. This column argues that this trend has repercussions for the real economy, as it affects job creation differently at firms of different sizes. As high-income households save relatively more in stocks and bonds and less in bank deposits, a higher income share of top earners channels funds to large firms, but tightens financing conditions for smaller, bank-dependent firms. Consequently, large firms expand while small firms create relatively fewer jobs. This is illustrated both empirically and in a framework where the job-creation channel of inequality amplifies the welfare consequences of redistributive policies.
