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What happened to the gains from strong productivity growth?

  • Jonathan L. Willis
  • Julie Wroblewski

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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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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  9. 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.
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