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What’s Right, and What’s Wrong, with “What is Wrong with the West’s Economies?” by Edmund Phelps

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  • D. Roderick Kiewiet

    (California Institute of Technology)

Abstract

Since the 1970’s American workers who lack a college education have fared poorly in the labor market, as their compensation has fallen in both absolute and relative terms. In “What is Wrong with the West’s Economies”, Edmund Phelps attributes these adverse developments to a significant decline in productivity growth, which in turns results from a stagnation in innovation, entrepreneurial spirit, and in economic thought. In this essay I point to a number of problems with Phelps’ diagnosis, which include a tendency to overstate the dynamism of the past and to underestimate current gains in productivity. It is not declining productivity growth, but rather ongoing gains in productivity—and, more specifically, the nature and source of these productivity gains—that accounts for the worsening condition of those at the bottom of the labor market.

Suggested Citation

  • D. Roderick Kiewiet, 2016. "What’s Right, and What’s Wrong, with “What is Wrong with the West’s Economies?” by Edmund Phelps," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 11-18, August.
    • Handle: RePEc:spr:homoec:v:33:y:2016:i:1:d:10.1007_s41412-016-0009-0
    DOI: 10.1007/s41412-016-0009-0
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    References listed on IDEAS

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    1. Timothy C. Sargent & Edgard R. Rodriguez, 2000. "Labour or Total Factor Productivity: Do We Need to Choose?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 1, pages 41-44, Fall.
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    3. Edmund Phelps, 2015. "Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change," Economics Books, Princeton University Press, edition 1, number 10058-2.
    4. David H. Autor, 2015. "Why Are There Still So Many Jobs? The History and Future of Workplace Automation," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 3-30, Summer.
    5. Robert J. Gordon, 2014. "The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections," NBER Working Papers 19895, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Returns to education; Productivity growth; Innovation;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • N3 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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