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Slower Productivity and Higher Inequality: Are They Related?

Author

Listed:
  • Jason Furman

    (Peterson Institute for International Economics)

  • Peter Orszag

    (Lazard Freres & Co.)

Abstract

Income growth for typical American families has slowed dramatically since 1973. Slower productivity growth and an increase in income inequality have both contributed to this trend. This paper addresses whether there is a relationship between the productivity slowdown and the increase in inequality, specifically exploring the extent to which reduced competition and dynamism can explain both of these phenomena. Productivity growth has been uneven across the economy, with top firms earning increasingly skewed returns. At the same time, the between-firm disparities have been important in explaining the increase in labor income inequality. Both these findings are consistent with the observed reductions in competition, as evidenced by increasing concentration and economic rents, and business dynamism. The authors also explore the scenarios under which government policies can help mitigate, or contribute to, declining competition and dynamism.

Suggested Citation

  • Jason Furman & Peter Orszag, 2018. "Slower Productivity and Higher Inequality: Are They Related?," Working Paper Series WP18-4, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp18-4
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    Citations

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    Cited by:

    1. Pedro Bento & Diego Restuccia, 2019. "The Role of Nonemployers in Business Dynamism and Aggregate Productivity," NBER Working Papers 25998, National Bureau of Economic Research, Inc.
    2. Chang-Tai Hsieh & Esteban Rossi-Hansberg, 2023. "The Industrial Revolution in Services," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 3-42.
    3. Mariam Camarero & Gilles Dufrénot & Cecilio Tamarit, 2021. "How do inequalities affect the natural interest rate, and how do they impact monetary policy? Comparing Germany, Japan and the US," Working Papers halshs-03191667, HAL.
    4. Block, Joern H. & Hirschmann, Mirko & Kranz, Tobias & Neuenkirch, Matthias, 2023. "Public family firms and economic inequality across societies," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    5. Surhan Cam & Serap Palaz, 2021. "Managerial Jacobinism and performance in the private sector: Evidence from the Turkish shipyards for a vertical frame," Industrial Relations Journal, Wiley Blackwell, vol. 52(2), pages 161-182, March.
    6. Akcigit, Ufuk & Akgunduz, Yusuf Emre & Cilasun, Seyit Mumin & Ozcan-Tok, Elif & Yilmaz, Fatih, 2020. "Facts on business dynamism in Turkey," European Economic Review, Elsevier, vol. 128(C).
    7. Tetsugen HARUYAMA, 2021. "A Schumpeterian Exploration of Gini and Top/Bottom Income Shares," Discussion Papers 2125, Graduate School of Economics, Kobe University.
    8. Lorenz K.F. Ekerdt & Kai-Jie Wu, 2024. "The Rise of Specialized Firms," Working Papers 24-06, Center for Economic Studies, U.S. Census Bureau.
    9. Criscuolo, Chiara & Andrews, Dan & Gal, Peter N., 2019. "The best versus the rest: divergence across firms during the global productivity slowdown," LSE Research Online Documents on Economics 103405, London School of Economics and Political Science, LSE Library.
    10. Faris Alshubiri, 2022. "The financial competition, concentration and structure of financial performance nexus in the financial sector of Oman," Economic Change and Restructuring, Springer, vol. 55(2), pages 681-714, May.
    11. N. M. Rozanova, 2021. "Methodological Issues of Modern Competition Policy," Studies on Russian Economic Development, Springer, vol. 32(5), pages 492-498, September.
    12. Adam Cellan-Jones & Hussein Farook & Riccardo Ferrari & Maxwell Harris & Alex Rutt & Mike Walker, 2022. "Recent Developments at the CMA: 2021–22," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(4), pages 381-403, December.
    13. Riedl Drew, 2020. "Financing Universal Basic Income: Eliminating Poverty and Bolstering the Middle Class While Addressing Inequality, Economic Rents, and Climate Change," Basic Income Studies, De Gruyter, vol. 15(2), pages 1-34, December.

    More about this item

    Keywords

    competition; productivity; inequality; economic dynamism;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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