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Firms are key to advancing equality and productivity

Tuesday, September 11, 2018

Subject

Firm-level inequality.

Significance

Income inequality has risen since the 1980s across the developed world, suggesting that general factors are affecting modern economic life more than local factors. Since the 1990s, growth in wages and productivity has decelerated. Two strands of research use thousands of individual company records based on millions of employees to illustrate that firm-level wage structures and productivity growth are diverging, intensifying the changes in equality, income and productivity.

Impacts

  • Employee sorting into high- and low-wage firms has broader welfare implications for those trapped near the bottom of income distribution.
  • Reduced business dynamism suggests a role for anti-monopoly policies, even if it means an apparent attack on productive firms.
  • Declining dynamism, rising productivity divergence and a greater range of business models may continue to dampen wages and productivity.

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