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

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

Peter Orszag
US Government, 2015
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Editorial Rating

8

Qualities

  • Innovative

Recommendation

Inequality is a hot topic among practitioners of the dismal science, but this report from two noted economists sheds new light on the oft-probed issue. Jason Furman and Peter Orszag delve into new corners of the income-inequality picture, noting that returns to housing-related capital have outpaced returns to other types of capital. In another insight, they find that American workers no longer move around the country as they once did, a shift with implications for economic mobility. Alas, their text is replete with economics jargon. Nonetheless, getAbstract recommends this innovative study to investors and policy makers seeking fresh ideas on the problem of income inequality.

Take-Aways

  • The top 1% of American earners saw their share of total income jump from 8% in 1970 to 17% in 2010, an increase that reflects a change in the relative distribution of capital and labor to total income.
  • But that shift accounts for only about 20% of the rise in income inequality. Research on “economic rents” offers other reasons for the increase.
  • In 2014, returns to housing capital exceeded their historic 1970–1999 average by 2.8%, while returns to labor fell 3.8% short of their historic average.

About the Author

Jason Furman is chairman of the President’s Council of Economic Advisers. Peter Orszag is vice chairman of corporate and investment banking at Citigroup.

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