ILO Working paper 105

What Is Driving Wealth Inequality in the United States of America? – The Role of Productivity, Taxation and Skills

This paper assesses the drivers of wealth inequality. While inequality between skilled and unskilled workers is due to differences in educational attainment, within-group inequality is due to differences in productivity across firms. Workers in more successful firms are paid more than their peers with the same level of education and skills in less successful firms.

Out of four major structural changes affecting the US economy – namely a rising share of skilled workers, skill-biased technological change, decreasing progressiveness of taxation and productivity slowdown – we show that the decline in productivity growth not only is the main driver of the widening wealth disparities observed in the United States of America over the past few decades, but is also the only mechanism that can explain inequalities both within and between skill groups.