Slower Productivity and Higher Inequality: Are They Related?

Slower Productivity and Higher Inequality: Are They Related? Peterson Institute for International Economics. Working Paper 18-4. Jason Furman and Peter Orszag. June 2018

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. [Note: contains copyrighted material].

[PDF format, 15 pages].

The U.S. Income Distribution: Trends and Issues

The U.S. Income Distribution: Trends and Issues. Congressional Research Service, Library of Congress. Sarah A. Donovan, Marc Labonte, Joseph Dalaker. December 8, 2016

Income inequality—that is, the extent to which individuals’ or households’ incomes differ—has increased in the United States since the 1970s. Rising income inequality over this time period is driven largely by relatively rapid income growth at the top of the income distribution. For example, in 1975, the average income of households in the top fifth of income distribution was 10.3 times as large as average household income in the bottom fifth of the distribution; in 2015, average top incomes were 16.3 times as large as those at the bottom.

[PDF format, 47 pages, 1.19 MB].