The Productivity-Inclusiveness Nexus

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Historically low productivity gains and record high inequality are major challenges for policy makers around the world. Both concerns have been exacerbated by the global financial crisis but took roots well before and reflect fundamental challenges with the way our economies function.

This report proposes a new comprehensive approach to promote better productivity performance and reduce inequalities. It not only gathers the most recent empirical evidence on the main factors behind slowing productivity gains and rising or persisting inequalities but also suggests possible common foundations and linkages between these two trends. It stresses the risk of a vicious cycle setting in, where individuals with fewer skills and poorer access to opportunities are confined to unproductive and often precarious jobs. This reduces aggregate productivity and widens inequality. The report focuses on how to expand the productive assets of an economy by investing in the skills of its people and providing an environment where all firms have a fair chance to succeed, including in lagging regions. It draws preliminary conclusions on the type of policy packages that are needed and on their implications for policy making. It also sets an agenda for future research to deepen empirical evidence and make concrete country-specific policy recommendations.

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Getting to grips with the Productivity-Inclusiveness Nexus

Why has the great slowdown in productivity growth played out against a backdrop of rising inequality? Are declining productivity growth rates and increasing inequality linked? Are there policies that could address both trends? Building on existing OECD work, this chapter brings a new analytical perspective and the latest empirical evidence to bear in order to elaborate the potential links between rising inequalities and slowing productivity growth. The chapter explores possible feedback loops between productivity and inequality. It examines how inequalities amongst individuals (and regions) in areas like income, access to education and training, health care, quality jobs and new technologies tend to hinder aggregate productivity growth by reducing human capital accumulation, increasing the under-utilisation and misallocation of resources in the economy, and ultimately slowing the diffusion of innovation.

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