Inclusion the way to tackle income inequality

Riyadh

THE issue of rising income inequality loomed large at this year's World Economic Forum in Davos, Switzerland. As is well known, the United States' economy has grown significantly over the past three decades, but the median family's income has not. The top one per cent (indeed, the top 0.01 per cent) have captured most of the gains, something that societies are unlikely to tolerate for long.

Many fear that this is a global phenomenon with similar causes everywhere, a key claim in Thomas Piketty's celebrated book Capital in the Twenty-First Century. But this proposition may be dangerously misleading. It is crucial to distinguish inequality in productivity among firms from unequal distribution of income within firms.