GROWTH, PROSPERITY AND THE GENERATION OF INEQUALITY Review of The State of Working America, 1998–99, by Lawrence Mishel,

These two books share a common purpose—to bring together recent research on labor market conditions in an accessible form. Their aim is to inform those responsible for developing and implementing policy and those whose popular writings on economic issues help set the tone of the reform agenda. Writing in the Foreword to the Gregg and Wadsworth (GW) volume, Will Hutton emphasizes the importance of its attempt to close the gap between research and the views of politicians, pundits and policy advisors—views that are often informed ‘‘by little more than scraps of statistics, anecdote and prejudice.’’ The underlying theme of both volumes is the growing inequalities experienced by different groups of labor market participants over the last twenty-five years or so. However, in taking on this admirable task of closing the gap between research and policy, a key determinant of success is the quality of presentation. It is therefore reasonable to judge the success of each volume against this benchmark, as well as in relation to content and scholarship. It is difficult to think of two countries better than the United States and the United Kingdom in which to explore the dimensions and consequences of growing inequality since the 1970s. Although income inequality has been a striking feature of economic development in many industrialized countries over the last quarter of the twentieth century, the trend to inequality has not been universal across either time or place (Atkinson, 1996; Osberg, 2000). Yet widening income disparities have emerged or been anticipated in a wide range of countries at some point over the last three decades. The pattern has been sufficiently widespread that many have seen rising inequality as the inevitable price to be paid for restarting the engine of growth that stalled so fatefully in the 1970s. Underlying the view that an increase in inequality is necessary to improve incentives, increase economic growth and raise living standards—at least in the minds of politicians and their policy advisors—is the idea of a trade-off between equity and efficiency made popular by Arthur Okun (1975). This presumed tradeoff was the rationale for the economic policies of the Reagan Bush and Thatcher Major Governments, both of which pursued policies that deliberately increased inequality in order to improve incentives. Yet by the time these policies were coming into full effect, academic economists—inspired by the new theories of endogenous growth—had rejected the trade-off idea in favor of a new orthodoxy