Insights Blog

The Real Driver of Rising Inequality

May 16, 2018

Wage suppression - not monopoly power - is fueling corporate profits and the growing gap between rich and poor.

In a recent blog for the Institute for New Economic Thinking (INET), Economist and Director of SCEPA’s Sustainability project Lance Taylor documents the rise in inequality with the rise of “monopoly” firms.

A “monopoly” firm is traditionally defined as a firm that uses its market power to artificially inflate consumer prices. In a paper by Taylor and and NSSR Economics PhD candidate Ozlem Omer, “Where Do Profits and Jobs Come From?,” they find these firms more often suppress wages for their workers, which has led to more inequality in the United States.

At the same time, employment has been growing slowly over the past four decades. An increase in productivity, as well as globalization and robots in production, has contributed to the slow growth in jobs. Together, lower wages and slow job growth have intensified inequality. The macro-level view also shows a shift of employment towards low-productivity jobs, like education and food services, which holds down wages and job opportunities.

The increase in inequality aligns with austerity policies that hurt workers’ bargaining power. Firms can constrain wages for workers by exerting their buying power in the job market. Stalemates at the National Labor Relations Board also hurt workers’ bargaining power. The structural problems, along with increasing “monopoly” power for firms, require widespread reform to overturn the United States’ growing inequality.

About SCEPA

SCEPA works to focus the public economics debate on the role government can and should play in the real productive economy - that of business, management, and labor - to raise living standards, create economic security, and attain full employment.