Skip to main content

Kellog Insight:
Why income inequality among white collar workers is growing

5 July 2016

Rising income inequality in the U.S. may seem like a 21st-century preoccupation, as workers agitate to ''occupy Wall Street'' from the left and to ''make America great again'' from the right. But the wage gap separating high-income Americans from everyone else has actually been growing since the late 1970s, even as nationwide productivity and overall wages have risen.

Traditionally, economic explanations of this trend have fallen into two categories. Some assign responsibility to policies - for example, claiming that changes in tax policy in the 1980s and early 2000s increased earnings inequality. Others assign responsibility to changes in the supply and demand for labor - for example, arguing that the long shift in the U.S. economy from manufacturing to services may have boosted the demand for skilled workers relative to unskilled workers.

Thomas Hubbard, a professor of strategy at the Kellogg School, has a different idea. In two research papers coauthored with Luis Garicano of the London School of Economics, Hubbard makes a case that in addition to tax policy and labor-market shifts, organizational efficiencies have played a role in widening the income gap.

This article was published online by Kellog Insight (USA) on July 5, 2016
Link to article here

Related publications
Organization and Inequality in a Knowledge Economy, Luis Garicano and Esteban Rossi-Hansberg, The Quarterly Journal of Economics (2006) 121 (4): 1383-1435 doi: 10.1093/qje/121.4.1383
Knowledge-based Hierarchies: Using Organizations to Understand the Economy, Luis Garicano and Esteban Rossi-Hansberg, Centre for Economic Performance Occasional Paper No.43, October 2014

Related links
Luis Garicano webpage
Growth Programme webpage

Read more... Kellog Insight