Slower Productivity and Higher Inequality: Are They Related?

15 Pages Posted: 21 Jun 2018

See all articles by Jason Furman

Jason Furman

Harvard Kennedy School; Peterson Institute for International Economics

Peter R. Orszag

Lazard Asset Management

Date Written: June 6, 2018

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.

Keywords: competition, productivity, inequality, economic dynamism

JEL Classification: D24, D31, D40, E25, K20, L40

Suggested Citation

Furman, Jason and Orszag, Peter R., Slower Productivity and Higher Inequality: Are They Related? (June 6, 2018). Peterson Institute for International Economics Working Paper No. 2018-4. Available at SSRN: https://ssrn.com/abstract=3191984 or http://dx.doi.org/10.2139/ssrn.3191984

Jason Furman (Contact Author)

Harvard Kennedy School ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Peter R. Orszag

Lazard Asset Management ( email )

30 Rockefeller Plaza
New York, NY 10112
United States

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