February 2015, John Schmitt

This report argues that a key driver in rising inequality and a decline in the employment to population ratio is conscious economic policy, with a particularly important and under-appreciated role for macroeconomic policy. The paper first demonstrates the remarkable “flexibility” of U.S. labor markets relative to the situation in other rich economies. The paper then links this policy-induced flexibility to high and rising inequality and shows that such flexibility ceased long ago to contribute --if it ever did-- to greater job creation.

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