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Want to Boost U.S. Productivity? Tackle Inequality

Want to Boost U.S. Productivity? Tackle Inequality

(Bloomberg Opinion) -- When considering ways to address economic inequality in America, policy makers typically assume that there’s a trade-off: If you try to make people more equal, you risk constraining the productivity growth essential to overall wealth -- but if you try to boost productivity, you risk increasing inequality. You can be soft-hearted or hard-headed, but not both at the same time.

To some extent, an equity-efficiency trade-off is an inherent part of a market economy. Higher incomes incentivize people to work harder, move to more productive jobs, get education, invest, and innovate -- making the whole country richer, but also leaving some much better off than others. And trying to redistribute income can dampen those incentives, reducing overall wealth.

But often, thinking in terms of an equity-efficiency trade-off is unhelpful. There are many ways in which the U.S. could boost both equality and productivity together, simply by tapping into the potential of its most disadvantaged people.

The argument is simple: we are able to maximize the total production of things we value -- whether that’s food, cars, movies, or scientific breakthroughs -- when all people are doing the things they are best at. That’s far from the case in the U.S. today, where substantial barriers prevent whole groups of people -- including women and minorities -- from realizing their productive potential. This is not just extremely inequitable. It’s also economically damaging.

Addressing inequities could therefore be a powerful solution to concerns about the U.S. experiencing a productivity slowdown or losing ground in the global innovation race. Economists from Chicago and Stanford estimated that between 20% and 40% of all U.S. productivity growth between 1960 and 2010 stemmed from the improved allocation of talent, as labor market opportunities opened up for African Americans and women. Another paper, from Harvard’s Opportunity Insights group, concluded that if women, minorities and people from low-income families were to invent at the same pace as white men from high-income families, the rate of innovation could quadruple.

How can all this potential be unlocked? An obvious place to start is reforming the criminal justice system -- for example by reducing penalties, particularly for non-violent offenses, and by increasing the focus on rehabilitation over retribution. With roughly 2.2 million people behind bars, the U.S. has the world’s highest incarceration rate, more than four times that of any Western European country or Canada. This is a massive waste of human potential -- and it doesn’t just squander the talents of those currently in prison. An estimated 8% of all U.S. adults and 33% of African-American males have felony convictions. Criminal records, even for minor offenses, substantially damage employment prospects: People with a criminal record are 40% to 65% less likely to receive a callback on a job application, and face more than 13,000 state occupational licensing restrictions.

Maximizing productivity also requires improving access to opportunity in a more holistic sense. The neighborhood in which a child grows up is a major determinant of life outcomes, and achievement gaps appear as early as three years old. Purely from the perspective of aggregate efficiency, we should aim to eliminate these achievement gaps across class and race lines -- meaning that education funding and resources should be disproportionately targeted towards disadvantaged children and young adults. Most states don’t do this; in some, school funding is actually regressive, with poorer children receiving less funding per child than richer ones, and predominantly non-white school districts receiving less funding per child than predominantly white school districts. Given the effects of education on productivity, improvements should be made throughout the system, from the provision of high-quality early childhood education to the expansion of low-cost access to college, particularly at institutions that do the most to promote social mobility.

I could go on. Paid family and medical leave, affordable childcare, and increased workplace flexibility would make it easier for caregivers -- predominantly women, and disproportionately women of color -- to do the jobs they do best. Increasing housing supply and affordability in big cities would enable people to go where the best opportunities are.  Rolling back the proliferation of unnecessary non-compete clauses and occupational licensing restrictions, and instating a truly portable benefits system that doesn’t tie workers to employers or penalize non-traditional work arrangements, would enable people to switch more easily into the most appropriate professions. And providing legal status for the 11 million undocumented immigrants living in the U.S. would enable them to move up out of low-productivity jobs in the informal economy.

This might read like a progressive policy laundry list. That’s the point. Many of the policies I mentioned can be justified from a purely moral perspective, and would be worth pursuing even if they reduced economic efficiency. But when people can’t fulfil their potential -- when they can’t access good jobs or the education, healthcare and support networks needed to thrive in those jobs -- it’s not just justice and equity that lose out. Progressives shouldn’t shy away from emphasizing that, actually, many of their top priorities can promote both equity and prosperity at the same time.

To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anna Stansbury is a Ph.D. candidate in economics at Harvard University and a Stone Ph.D. Scholar in Harvard's Program in Inequality and Social Policy.

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