How does income inequality affect productivity in different sectors of the economy?
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Income inequality has varying effects on productivity across different sectors of the economy. Research indicates that a mean-preserving spread of income distribution can negatively impact aggregate productivity by softening firms' selection processes . Moreover, income inequality has been found to lower the rate of labor productivity, leading to more divergence across provinces and sectors . In developing countries, income inequality significantly deters total factor productivity (TFP) in the long term, potentially resulting in low productivity, slower growth, and an increased risk of extreme poverty . Addressing productivity disparities could help reduce wage disparities and boost economic growth by mitigating structural problems that amplify wage differentials and cause misallocations of labor . Therefore, policies aimed at reducing income inequality and enhancing productivity are crucial for sustainable economic development across various sectors.
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| Papers (5) | Insight |
|---|---|
Open access•Posted Content | Income inequality negatively impacts aggregate productivity by reducing the number and quantity of products consumed by different income groups, softening firms' selection, but this effect is mitigated by international trade. |
| Income inequality impacts productivity by amplifying wage differentials due to structural issues like sector disparities and outdated regulations, leading to misallocations of labor and lower productivity levels. | |
9 Citations | Income inequality significantly hinders total factor productivity (TFP) in developing countries but does not affect TFP in developed countries, impacting growth and poverty rates differently across sectors. |
| Income inequality softens firms' selection, reducing aggregate productivity, especially in the presence of international trade with lower barriers or more partners, impacting all sectors uniformly. | |
| Income inequality affects productivity asymmetrically in sectors, causing divergence. Sectors with greater inequality experience lower productivity rates, emphasizing the need for an egalitarian redistribution system. |
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