Real GDP growth rate in developed countries is found to be a sum of two terms. The first term is the reciprocal value of the duration of the period of mean income growth with work experience, Tcr. The current value of Tcr in the USA is 40 years. The second term is inherently related to population and defined by the relative change in the number of people with a specific age (9 years in the USA), (1/2)*dN9(t) /N9(t), where N9(t) is the number of 9-year-olds at time t. The Tcr grows as the square root of real GDP per capita. Hence, evolution of real GDP is defined by only one parameter - the number of people of the specific age. Predictions for the USA, the UK, and France are presented and discussed. A similar relationship is derived for real GDP per capita. Annual increment of GDP per capita is also a combination of economic trend term and the same specific age population term. The economic trend term during last 55 years is equal to $400 (2002 US dollars) divided by the attained level of real GDP per capita. Thus, the economic trend term has an asymptotic value of zero. Inversion of the measured GDP values is used to recover the corresponding change of the specific age population between 1955 and 2003. The population recovery method based on GDP potentially is of a higher accuracy than routine censuses.
A comprehensive study of the US personal income distribution (PID) and detailed modelling of some important characteristics of the distribution is carried out by Kitov (2005a). The principal finding is that people as economic agents producing (equivalent -earning) money are distributed according to a fixed and hierarchical structure resulting in a very rigid response of the personal income distribution to any external disturbances including inflation and real economic growth.
There is a predefined distribution of relative income, i.e. portion of the total population obtaining a given portion of the total real income. In addition, every place in the distribution is occupied by somebody. A person occupying a given place may propagate to a position with a different income, but the vacant place must be filled by somebody. For example, by the person who was in the new place of the first one. Only such an exchange of income positions in the PID, or more complicated change of positions with circular substitutes, is possible. This mechanism provides a dynamic equilibrium and the observed stable personal income distribution.
The measured PIDs in the USA corrected for the observed nominal per capita GDP growth rate show a very stable shape during the period between 1994 and 2003. This stability is interpreted as an existence of an almost stable relative income distribution hierarchy in American society, which might be developing very slowly with time. Then, inflation should represent a mechanism compensating disturbance of the PID caused by real economic growth. Inflation eats out of the poor people advantages obtained from the real economic growth.
The economic structure also predefines the observed economic evolution. Only characteristics of age distribution in the population are important for GDP growth rate above some economic trend. Numerically, the latter is inversely proportional to the attained value of per capita real GDP. Analysis of the two factors of the American economic growth is the main goal of this paper. The analysis is focused on the decomposition of real economic growth (GDP) and per capita real economic growth in developed economic countries into an economic trend and fluctuations as described by theories of business cycles proposed by Hodrick and Prescott (1980). The sense of the two terms is different, however.
Per capita GDP growth rate in the USA was used by Kitov (2005a) as an external parameter in prediction of the observed evolution of the PID, its components and derivatives. The PID has been expressed as a simple and predetermined function of GDP per capita and the age structure of the working age population in the USA. The current study interprets this relationship in the reverse direction. The observed PID is considered as a result of each and every individual effort to earn (equivalent -to produce goods and services) money in the economically structured society as exists in the USA. Thus, the individual money production (earning) aggregated over the US working age population is the inherent driving force of the observed economic development. The working age means the age eligible to receive income, i.e. 15 years of age and above. This effectively includes all retired people. The principal assumption made by Kitov (2005a) and retained in the current study is that GDP denominated in money is the sum of all the personal incomes of all the people over 14 years of age. This statement not only formulates the income side of GDP definition but extends Walrasian equilibrium to all people above 14 years of age, with income being the only measure of the produced goods and services whatever they are. This statement unambiguously defines the upper limit to the total income (Gross Domestic Income) or GDP which can be produced by a population with a given age structure and characterized by some attained level of GDP per capita.
As the age structure is given and individual incomes in the society are predefined by a strict relationship between age and per capita GDP (Kitov, 2005a), the total potential income growth has to be also predefined.
By definition, a person produces exactly the same amount of money (as goods, services, or something else) as s/he receives as income. This provides a global balance of income (earnings) and production, but also a more strict and important local balance. Economic structure of a developed economic society confines its possible evolution as everybody has an income place (position in PID) and produces according to this place. This approach also implies that there is no economic means to disturb the economic structure of such a society. For example, it is impossible to reduce poverty or to limit individual incomes of rich people compared to the level predefined by the economic structure itself.
According to the PID observations in the USA, all positions of poor and rich people in the structure are always occupied. This might be not the case in other countries. Th
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