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  • Three Misconceptions About Inequality

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    Peter Orszag
    26 vistas3 páginas
    Concern about inequality in the U.S. is getting well-deserved attention. Unfortunately, though, discussions of the problem too often rest on three misconceptions: that capital is rising as a share of the economy, that most of the rise in wage inequality is explained by growing gaps within companies between higher and lower paid workers, and that workers are increasingly moving from one job to another.

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    Concern about inequality in the U.S. is getting well-deserved attention. Unfortunately, though, discussions of the problem too often rest on three misconceptions: that capital is rising as a share of the economy, that most of the rise in wage inequality is explained by growing gaps within companies between higher and lower paid workers, and that workers are increasingly moving from one job to another.

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    © All Rights Reserved
    Descargue como PDF, TXT o lea en línea desde Scribd
    Marcar por contenido inapropiado
    26 vistas3 páginas

    Three Misconceptions About Inequality

    Cargado por

    Peter Orszag
    Concern about inequality in the U.S. is getting well-deserved attention. Unfortunately, though, discussions of the problem too often rest on three misconceptions: that capital is rising as a share of the economy, that most of the rise in wage inequality is explained by growing gaps within companies between higher and lower paid workers, and that workers are increasingly moving from one job to another.

    Copyright:

    © All Rights Reserved
    Descargue como PDF, TXT o lea en línea desde Scribd
    Marcar por contenido inapropiado
    de 3

    6/3/2015

    Three Misconceptions About Inequality - Bloomberg View

    E C ON OMIC S

    ThreeMisconceptionsAbout
    Inequality

    APR1,201511:09AMEDT

    ByPeterR.Orszag

    aA

    ConcernaboutinequalityintheU.S.isgettingwelldeservedattention.Unfortunately,though,
    discussionsoftheproblemtoooftenrestonthreemisconceptions:thatcapitalisrisingasashare
    oftheeconomy,thatmostoftheriseinwageinequalityisexplainedbygrowinggapswithin
    companiesbetweenhigherandlowerpaidworkers,andthatworkersareincreasinglymovingfrom
    onejobtoanother.
    Allthreeofthesenotionsarewrong,tovaryingdegrees:Capitaloutsideofhousingandlandhas
    notincreasedintheU.S.relativetotheeconomy.Mostoftheincreaseinwageinequalityhas
    occurredbetweencompanies,notwithinthem.Andpeopleareless,notmore,likelytoswitchjobs
    todaythantheywereinthepast.
    Thepieceofthisthatmightholdthemostpotentialtoexplainallthemisunderstandingisthat
    companieshavedivergedintheirproductivityandprofitrates.Andthatinturncouldsignalthe
    riseofeconomicrentsforexample,profitsatsomecompanieswellinexcessofwhat's
    necessarytokeeptheminthemarket.Suchwindfallgainstosomefirms(andworkers)may
    underliethewholethreepartpuzzle.
    Considerthat,fromthemid1970stothemid1990s,someU.S.manufacturingplantsbecamefar
    moreproductivethanothers.AndmuchthesamethinghappenedintheU.K.fromthe1980stothe
    2000s.
    Duringroughlythesameperiod,thereturnoninvestedcapitalthatis,howmuchprofitis
    generatedforeachdollarofinvestmentalsogrewmoreunequalbetweencompanies.Whilethe
    http://www.bloombergview.com/articles/2015-04-01/a-better-explanation-for-u-s-economic-inequality

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    6/3/2015

    Three Misconceptions About Inequality - Bloomberg View

    typicalreturnwasroughlyconstant,atabout10percent,returnsbecamemoredispersedovertime.
    Inparticular,from1965to1967,only1percentofnonfinancialfirmsearnedreturnsof50percent
    ormore,butfrom2005to2007,14percentdid.Inotherwords,50yearsago,oneoutof100firms
    earned50percentreturns.Morerecently,oneoutofsevendid.
    Thesedatasuggestthreethings:First,thetypicalreturntocapitalhasn'tchangedmuch,whichis
    whatyouwouldexpect,giventhatthecapitaloutputratioexcludinglandandhousinghasbeen
    stable.
    Second,fromcompanytocompany,thatreturnhasbecomemuchmoreunequal,ashas
    productivity.Someofthisinequalitybetweencompaniesinreturnsandproductivitytendstospill
    overintowages.Andthisispreciselywhatwe'veseen.Itexplainsmoreoftheriseinoverall
    earningsinequalitythandoestheincreasedgapsbetweenthepayofhigherearnersandrankand
    fileworkerswithinagivencompany.
    Finally,workersatthehighpaying,highreturn,highproductivitycompaniesarenotmotivatedto
    leave,soentryintojobsatthosecompaniesmaybelimited.Thisreducesaggregatejobturnover.
    Thisalternativenarrativemayhaveafewholesasitiscobbledtogetherfromdifferentpiecesof
    informationbutitatleastdeservesmoreattention.(Notethatevenifitcanhelptoexplain
    inequality,itcantexplainwagestagnation,whichisoftenconflatedwithinequality.)
    Themosttroublingaspectofthisnarrative,bytheway,isthatmuchofwhattheincreasingly
    profitablecompaniesareearningmayexceedwhatsnecessaryforthemtocontinueproducing
    theirgoodsorservices.
    TheMcKinsey&Co.teamthatdocumentedtheriseinsuperhighreturnsnoted,Inmanycases,
    thisimprovementhasoccurredinindustrieswithstrongbarrierstoentry,suchaspatentsorbrands
    wheregainsthatcompanieshavemadefromdecreasedrawmaterialpricesandincreased
    productivityhavenotbeentransferredtootherstakeholders.Theriseinhousingandlandvalues,
    whichexplainstheentireriseintheratioofcapitaltooutput,mayrepresentyetanotherformof
    windfallgains.
    Thus,asJosephStiglitzhassaid,ourunderstandingofgrowinginequalityrequiresagreater
    understandingofrents,whatgivesrisetothem,andhowtheyevolveovertime.
    Foralltheconcernthathasbeenfocusedontheproblemofinequality,thisunderstandingofthe
    http://www.bloombergview.com/articles/2015-04-01/a-better-explanation-for-u-s-economic-inequality

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    6/3/2015

    Three Misconceptions About Inequality - Bloomberg View

    roleplayedbywindfallsandcompanytocompanyinequalityhasreceivedshockinglylittle
    attention.
    Tocontacttheauthoronthisstory:
    PeterOrszagatporszag3@bloomberg.net
    Tocontacttheeditoronthisstory:
    MaryDuenwaldatmduenwald@bloomberg.net

    http://www.bloombergview.com/articles/2015-04-01/a-better-explanation-for-u-s-economic-inequality

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