The Impact of Economic Development Strategy on Market Conditioned Income Inequality in the American States

Abstract

Langer found that the supply-side (locational) development policy increased income inequality in the American states, while demand-side (entrepreneurial) policy decreased inequality. Recent scholarship emphasizes the impact of unionization on state inequality. This analysis examines economic development policy and unionization in the same model. Using time series data (1983–2004) with an error correction model, it finds that entrepreneurial activism is associated with rising state inequality, while locational activism has no significant relationship. Additionally, entrepreneurial policy exerts a positive impact on inequality as union density rises, contrary to expectations. Skills-biased technical change is proposed to explain these findings.