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What happened to the gains from strong productivity growth?

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  • Jonathan L. Willis
  • Julie Wroblewski

Abstract

Over the past decade, the United States economy has experienced strong economic growth due in large part to a resurgence in productivity growth. Little attention has been paid, however, to examining how the gains from this growth have been distributed. In the past few years, observers have noted that the share of income paid to labor has been falling while corporate profits have surged. Also, observers have pointed out that income inequality appears to have widened, with little increase in real wages for low-income workers while executive pay has skyrocketed. Consequently, there has been a growing sentiment among the public that the average household is not sharing in the recent economic prosperity. ; Willis and Wroblewski examine how the gains from increased productivity growth have been distributed. Their analysis focuses on two questions: Has the increase in productivity growth led to a change in the income shares for capital and labor? And, has the strong productivity growth over the past decade led to a change in the distribution of income across households? ; The authors find that the shares of income allocated to labor and capital have been constant on average over the past 35 years. However, during the last decade of high productivity growth, low-income households have seen no increase in real income, and at most only the top 10 percent of the household income distribution experienced real income growth equal to or greater than average labor productivity growth.

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Bibliographic Info

Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2007)
Issue (Month): Q I ()
Pages: 5-23

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Handle: RePEc:fip:fedker:y:2007:i:qi:p:5-23:n:v.92no.1

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Keywords: Productivity;

References

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  1. Paul Gomme & Peter Rupert, 2004. "Measuring labor’s share of income," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Nov.
  2. Alan Krueger, 1999. "Measuring Labor's Share," Working Papers 792, Princeton University, Department of Economics, Industrial Relations Section..
  3. Michele Boldrin & Michael Horvath, 1994. "Labor Contracts and Business Cycles," Discussion Papers 1068, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Gomme, P. & Greenwood, J., 1993. "On the Cyclical Allocation of Risk," RCER Working Papers 355, University of Rochester - Center for Economic Research (RCER).
  5. Daniel Feenberg & James Poterba, 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Papers 4229, National Bureau of Economic Research, Inc.
  6. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  7. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
  8. Lucian Bebchuk & Yaniv Grinstein, 2005. "The Growth of Executive Pay," NBER Working Papers 11443, National Bureau of Economic Research, Inc.
  9. repec:fth:prinin:413 is not listed on IDEAS
  10. Fredrik Andersson & Matthew Freedman & John C. Haltiwanger & Julia Lane & Kathryn L. Shaw, 2006. "Reaching for the Stars: Who Pays for Talent in Innovative Industries?," NBER Working Papers 12435, National Bureau of Economic Research, Inc.
  11. Ian Dew-Becker & Robert J. Gordon, 2005. "Where Did Productivity Growth Go? Inflation Dynamics and the Distribution of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 67-150.
  12. Dew-Becker, Ian & Gordon, Robert J, 2005. "Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income," CEPR Discussion Papers 5419, C.E.P.R. Discussion Papers.
  13. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
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Cited by:
  1. Rappaport, Jordan, 2008. "Consumption amenities and city population density," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 533-552, November.
  2. Kurose, Kazuhiro, 2009. "The relation between the speed of demand saturation and the dynamism of the labour market," Structural Change and Economic Dynamics, Elsevier, vol. 20(2), pages 151-159, June.

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