¶ A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

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¶ BibTeX

@incollection{furman20181,
  title={A Firm-Level Perspective on the Role of Rents in the Rise in Inequality},
  author={Furman, Jason and Orszag, Peter},
  booktitle={Toward a Just Society},
  pages={19--47},
  year={2018},
  publisher={Columbia University Press}
}

¶ Excerpt

[Stiglitz] Joe has been a leading advocate of the hypothesis that the rising prevalence of economic rents— payments to factors of production above what is required to keep them in the market—and the shift of those rents away from labor and towards capital has played a critical role in the rise in inequality (Stiglitz 2012). The aggregate data are directionally consistent with this story, including the fact that the share of income going to capital has risen and the profit rate has risen. But this aggregate story does not fully explain the timing and magnitude of the increase in inequality. Inequality started rising in the 1970s, while the capital share of income and the profit rate did not begin its rise until around 2000. Moreover, the majority of the increase in inequality can be accounted for by an increasingly skewed distribution of labor income, not the division of income between workers and owners of capital. This paper advances another hypothesis using firm-level data to argue that there has been a trend of increased dispersion of returns to capital across firms, with an increasingly large fraction of firms getting returns over 10, 20 or 30 percent annually—a trend that somewhat precedes the shift in the profit share