This thesis contains three chapters. The first two chapters provide the theoretical and empirical analysis of fast-growing inequality over recent decades, and the last chapter examines the employment effect of raising the minimum wage, a policy commonly used to support low-wage workers to mitigate increasing inequality. The first chapter investigates why the upsurge of top income shares has coincided with economic slowdowns in the United States after the late 1970s. Based on theoretical and empirical backgrounds, I argue that a fast-growing unearned income from 'wealth residual', defined as the unexplained increase in wealth that is not accompanied by any increase in real output, lies behind them. To demonstrate this hypothesis, after measuring wealth residual from the national accounts and the associated statistics, I perform a set of panel vector autoregressive models with heterogeneous dynamics using a comprehensive dataset of the United States at the state level. The estimation results highlight that the rapid growth of wealth residual during the last four decades, influenced by the government's regressive policies on rent-related activities, has generated a co-evolution of fast-growing inequality and economic slowdowns. My further policy analysis reveals that a sharp increase in wealth tax or housing supply itself is not likely to solve the problem; on the contrary, industrial policies that can divert excess rent-related finance into productive investment must take precedence. The second chapter investigates why some people 'stay' wealthy while others 'remain' poor despite the rapid expansion of aggregate wealth, and to what extent the government can affect wealth inequality. Based on the empirical evidence of persistently heterogeneous returns on wealth across households, I introduce the 'rentier premium', defined as the gap between the return on asset ownership and the return on capital used for the production of real output in a perfectly competitive market, into the standard heterogeneous agents dynamic stochastic general equilibrium model. I also examine the effect of two different types of government on wealth distribution and welfare gains. This study concludes that the rise in rentier premium and the government's regressive policies have acted as key drivers in the co-evolution of rising wealth inequality and declining labour shares in the United States since the 1980s. The third chapter investigates how much higher the minimum wage can safely rise without leading to employment losses. The unprecedented impeachment of South Korea's former president in mid-2017 and the subsequent large rise in the minimum wage allows us to investigate the non-linear employment effects of increases in the minimum wage on low-paid workers. To demonstrate these effects, I use two-step generalized method of moments, difference-in-differences and regression discontinuity designs based on individual-level panel data over the period of 2009--2018. The estimation results show that a 14.9% rise in the real minimum wage in 2018 seems to hit the tipping point, which is 5.5% in my estimation. This unexpected double-digit growth in the minimum wage has led to a reduction in the number of hours worked by low-wage workers, compared with modest increases over a decade under business-friendly governments. Paradoxically, the large increase in the minimum wage has had an unintended positive consequence of promoting better work-life balance in South Korea - a place that is notorious for over-working. We ask: Can increases in the minimum wage actually help low-income workers? It depends.
wealth residual, inequality, growth, panel vector autoregressive model, rentier premium, heterogeneous agents DSGE, minimum wage, non-linear employment effect, regression discontinuity designs
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