fbpx HKS faculty tackle causes and effects of extreme economic inequality | Harvard Kennedy School

BEYOND THE SUFFERING OF INDIVIDUALS, the extreme levels of inequality now evident in the United States and other countries across the globe carry grave systemic risks, many Harvard Kennedy School scholars and researchers say. Hopelessness and lack of economic opportunity breed discontent, which populists and authoritarians can seize upon to exacerbate political polarization, putting democracy at risk.

“We might feel that things are very divided today, but things can get worse,” says Gordon Hanson, the Peter Wertheim Professor in Urban Policy at HKS, who has studied the damaging effects of globalization on workers in the United States and who recently cofounded the Reimagining the Economy Project with Dani Rodrik, the Ford Foundation Professor of International Political Economy. “We’ve seen a significant deterioration in our sense of common purpose and our sense of trust in national unity, and failing to rise to this challenge means that we could slide further down that hill.”

To meet the moment, the Kennedy School has launched a number of projects and initiatives in the past few years to address the underlying drivers of extreme inequality and to propose solutions. In March, Kennedy School Dean Douglas Elmendorf announced the creation of the new James M. and Cathleen D. Stone Program in Wealth Distribution, Inequality, and Social Policy, calling it a “crucial challenge … to create appropriate public policy to create a fairer economic system that can provide economic opportunity and mobility.”

“Income inequality and concentrated wealth can leave many people at economic and social disadvantage,” Elmendorf, the Don K. Price Professor of Public Policy, wrote in announcing the program. “Moreover, concentrations of income and wealth can concentrate political power in ways that threaten and undermine our democracy.”

The Stone Program, based at the Malcolm Wiener Center for Social Policy, brings together faculty members, researchers, and students from across Harvard and beyond to study the causes and consequences of wealth inequalities in various populations around the world. Other efforts at the Kennedy School, many of them also based at the Wiener Center, study inequality from a variety of perspectives, including how to make public discourse about inequality more productive; envisioning new economic policies and systems that lift more people out of poverty and dead-end jobs; better understanding the needs of low-wage workers; improving job training programs to create more widespread mobility; and finding the most effective way to direct financial help to those in need.

That multifaceted and multidisciplinary approach is vital, says HKS Academic Dean David Deming, a faculty codirector of the center’s Project on Workforce and the Isabelle and Scott Black Professor of Political Economy. Before being named academic dean, Deming taught a class called “The Causes and Consequences of Inequality.” “My overall frame for the class,” he says, “was that with a problem like inequality, there are multiple competing explanations, but only one fact pattern. So whatever your story is for why inequality has increased in the past half century, it has to fit all the facts. But it never does. That teaches students that the problem of inequality has multiple causes and probably multiple solutions.”

Photographs of a closed factory and a jobs fair inside a line graph

How can we change the conversation about inequality?

IT'S A TOUGH THING for an economist to admit, but focusing on the numbers when trying to tell the story of inequality’s causes and effects has not been particularly successful, says Gordon Hanson. “As we economists have tried to communicate what the data say to the rest of the world about the state of working America, we quickly get locked in the political battles about redistribution of income, about government, regulation and taxation, and so forth.”

Cue the Reimagining the Economy Project, which is based at the Wiener Center. Hanson—who has done extensive work with economists David Autor of MIT and David Dorn of the University of Zurich on the so-called “China shock” effect on workers left behind when corporations moved manufacturing jobs to Asia—focuses mostly on economic fallout in U.S. communities. Rodrik, meanwhile, applies a global perspective, studying local policies in other industrial and developing countries that are aimed at mitigating the effects of global trade on workers. Overall, the project seeks to meld a range of ideas, disciplines, and perspectives to produce multidisciplinary scholarship that will change the conversation about what Hanson calls “inclusive prosperity.”

“Inclusive prosperity is grounded in the idea that we want to be creating jobs that confer dignity on workers,” Hanson says. “And that means jobs that allow you to provide for your family, that let you get your kids the education or the career training that you desire for them, that give you prospects of being a homeowner if that’s what you choose to do, and that offer an upward trajectory that gives you the opportunity to achieve advancement, satisfaction, and engagement over the course of your career.”

The definition of inclusive prosperity views workers as people rather than economic inputs, Hanson says; progress toward it will be achieved only through a policy debate that is similarly focused. “When we say that people at the 90th percentile earned this many times as much as people at the 10th percentile—it’s hard for people to get their heads around that,” he says. “We’ve been focused too much on the ratios of income … rather than saying, ‘Look at the [bottom] 20th percentile—life is really rough for them right now.’ The odds of someone in your household having metabolic disease is pretty high. The odds of someone in your household dealing with substance abuse is pretty high. The odds that most of the working-age adults in your house are not working is pretty high.”

The Reimagining the Economy Project is working on a number of strategies to change the conversation, including building a data visualization platform that tries to tell the whole story of inequality’s economic consequences (see page 8). Ultimately, Hanson says, the aim is to go beyond analyzing how the current economy functions to visualize new structures, policies, and forms of market economies.



“Inclusive prosperity is grounded in the idea that we want to be creating jobs that confer dignity on workers.”

Gordon Hanson

In other ways, however, the challenge will be not coming up with new ideas, he says, but finding new ways to implement ideas that have already been proved effective—especially in the area of training people for better jobs.

“The utterly fascinating thing to us as we’re starting to learn about the experimentation that’s happening is how the right set of things to do seems pretty clear,” Hanson says. “You train disadvantaged workers and the long-term unemployed in skills targeted to specific occupations; you work with local employers for the training; and then you provide these wraparound services that get workers ready to work and the social skills they need to stay on the job. Those things really work. And the shocking thing is, we’ve known they work since the late 1990s.”

The problem, Hanson says, is that adopting and scaling up successful job-training programs requires getting actors in the public and private sectors within communities to work together. “That’s hard to do,” he says. “There are places that are doing it, and they aren’t fleetingly rare examples, but they are uncommon. The median place is not doing it.”

Hanson says that successful models they are studying tend to be public-private partnerships driven mostly by the private and nonprofit sectors, with government agencies serving a supporting role. Examples include The Right Place, in Grand Rapids, Michigan, which helped the city stay a vibrant manufacturing hub even after competition from China decimated the local furniture-making industry, and Greater Rochester Enterprise, which took advantage of legacy investments and capability in optic design and manufacturing to build a new sector after the devastating bankruptcy of Kodak.

“We’re trying to learn as much as we can about the nature of experimentation that’s happening right now,” Hanson says.

A worker in an office, a barista making a coffee, and a delivery man within a bar graph

How can we learn about low-wage workers’ lives to make those lives better? 

THE COVID-19 PANDEMIC thrust a previously invisible sector of workers into the public spotlight. Grocery stockers, food-service workers, and package-delivery drivers were suddenly embraced as “essential workers” and celebrated on lawn signs and in public-service announcements in the media.

But Daniel Schneider, the Malcolm Wiener Professor of Social Policy at HKS and a codirector of The Shift Project at the Wiener Center, says that to hourly workers, those kind words alone were worth very little. “The pandemic was a moment when these workers were really central to the response and in the public mind—but things did not improve for them that much,” he says. “Our research shows that their schedules remained really unstable and unpredictable, and their access to paid leave and other benefits did not substantially increase.”

Schneider seconds Hanson’s assertion that addressing inequality—and thereby mitigating both its personal and its societal consequences—requires thinking and talking about it in a new way. “I think we all think in terms of inequality, but inequality in what?” he says. “When we say ‘inequality,’ that’s often shorthand for income inequality and maybe wealth inequality. But there is a kind of broader inequality in life conditions that are very much shaped by work.”

When you compare workers who are stocking shelves, ringing up purchases, and making coffee for white-collar professionals with those professionals, Schneider says, you find not only monetary inequality between the two groups but also that white-collar workers have more control over their time. Service workers are largely still at the mercy of managers and the ruthless algorithms of scheduling software, and the Shift Project’s research has linked unpredictable schedules with psychological distress, poor-quality sleep, work-family conflict, economic insecurity, and job dissatisfaction. Canceled and back-to-back closing and opening (so-called “clopening”) shifts are strongly associated with negative outcomes. “In some ways the most fundamental inequality is this inequality of time,” he says. “Everyone has only so much of it, but the quality of that time is radically unequal.”

Yet in some ways the pandemic has also illuminated a path forward, Schneider argues. Demand caused by labor shortages and shifting attitudes about employee loyalty, often referred to as the Great Resignation, have given workers more power than they’ve had in a long time. “Wages have gone up at the bottom,” he says. “We have seen an actual narrowing of wage inequality for the first time in decades, and a surprisingly tight labor market over the past year has given these workers some degree of market power.”

To solidify that power, workers will need to continue another trend—organizing and unionizing as they have been doing at Starbucks, Amazon, and other prominent service-sector companies. “The movement toward greater voice and union representation suggests one path forward toward equality,” Schneider says. “We know from decades of research on unions and their decline that they are actually a force for reducing inequality, not just because they improve the well-being of their members, but because they have a broader, normative sort of regulatory function in the economy.”

But giving hourly-wage workers more power will require changing the conversation again, this time in the political arena, where support for organized labor has long been on the decline, despite recent shifts in public opinion. Support for unions is actually quite high and bipartisan when pollsters ask about issues such as paid family leave and a higher minimum wage. The problem, Schneider says, has been a disconnect between popular opinion and public policy when it’s filtered through politics.

“Policymaking and policymakers’ attitudes are much more closely aligned with those at the extreme high end of the wealth and income distribution than they are with mass public opinion, and that has consequences,” Schneider says.

A sunburst graph with images of job trainees

How can we bring together public policy, business, and education to build a better labor force? 

WHEN IT COMES TO GRADING vocational and job training ecosystems, Rachel Lipson MPP 2018 gives the United States barely passing marks.

“I’d probably give us a C or a C-minus,” says Lipson, a cofounder and former director of the Project on Workforce, now in the Biden administration. “We don’t have a cohesive or easy-to-navigate system, and the pathways here are often harder for people to access.”

The number of “bad jobs” versus “good jobs” in an economy is a key indicator of inequality. “There is a large volume of bad jobs in our economy right now, and there’s this notion of ‘Well, let’s just tell the employers that their jobs are bad and they need to improve them,’” Lipson says. “But I think the question is ‘How do you create an ecosystem where there’s higher productivity and higher return on investment so that structurally we can create more good jobs in this country?’”

Launched in 2019, the Project on Workforce is a cross-school, interdisciplinary collaboration between Harvard Kennedy School, Harvard Business School’s Managing the Future of Work Project, and the Harvard Graduate School of Education. The project tracks collaborations between government policymakers, business and labor interests, and education leaders that are necessary for successful job-training programs.

In some European countries, vocational and apprenticeship programs are the product of centuries of collaboration—sometimes dating back to craft guilds—between industry groups, education officials, and trade unions, which together define the skill sets workers will need to be productive and their employers will need to be successful. Meanwhile, the U.S. system developed very differently, with a heavy emphasis on college as the primary path to the working world.

David Deming, the project’s faculty director, says both approaches have positive and negative aspects. Although the Swiss apprenticeship system has a high degree of collaboration, for example, it can also be rigid to the point of failing to keep up with technological change and emerging industries. And although the U.S. college-based system tends to be more decentralized and nimble, it doesn’t serve large numbers of people well—if at all. “If you’re fortunate enough to come from a family of means and you go to a good four-year college, a lot of pathways are laid out for you,” Deming says. “Students at selective colleges like Harvard, for example, often don’t know very much about which jobs are going to be good for them in the long run, but they’re living in an environment where it’s very hard to make a bad choice, because all the people around them are guiding them. Most people don’t have access to such resources, and I would like to change that.”


“I think the question is ‘How do you create an ecosystem where there’s higher productivity and higher return on investment so that structurally we can create more good jobs in this country?’”

Rachel Lipson MPP 2018

Potentially productive approaches identified by the Project on Workforce include democratizing education by creating more opportunities for learners to hone skills while earning wages and focusing on portable skills that will keep workers from getting stuck in dead-end jobs.

Lipson says that high school vocational programs are often stigmatized for tracking certain students—especially students of color and with lower socioeconomic status—toward lower-wage careers. Yet research has found that programs like Year Up, where young people work for employers in high-demand sectors while earning credentials and paid stipends, have had proven positive impacts.

“The job-fit question really matters,” she says. “The research evidence broadly supports the claim that these early career choices about which occupation or field you’re going to start in can make a big difference in your lifetime earnings. So the question becomes ‘How can we create more guidance, structure, and support?’ This is something I think the United States overall does really badly on, especially in low-income communities.”

Deming, meanwhile, says he would like to see a greater focus on portable skills that can help new members of the workforce transition between jobs, especially two key ones: the ability to work on a team and independent decision-making and problem solving.

Deming says teaching students to work effectively on a team is often neglected in schools, because even when students are asked to work in teams, teachers tend to segment assignments in a way that makes individual grading possible. So he and his colleague Ben Weidmann, director of research at the Skills Lab at HKS, recently published a paper on a method they’ve developed to better identify individual contributions to group performance.

Other tools created by the Project on Workforce include a soon-to-be-launched website that will allow users to view a map of the United States and identify geographic locations where the supply of workers fails to match the demand in key industries.

Pie chart with photos of a food bank and grocery store

How can we most directly help those suffering from inequality?

CHANGING PUBLIC DISCOURSE and creating better job-training systems are important, but they take time, and sometimes the consequences of extreme inequality necessitate getting help to people who need it most as quickly and as effectively as possible. A recent example comes from Chelsea, Massachusetts, which has long been one of the state’s poorest communities: Nearly a quarter of its residents live below the federal poverty level.

Jeffrey Liebman, the Robert W. Scrivner Professor of Social Policy and faculty director of the Kennedy School’s Rappaport Institute for Greater Boston, says the COVID-19 pandemic caused “extreme hardship” among the city’s 40,000 residents, of whom a significant number are undocumented immigrants and thus were ineligible for unemployment insurance, stimulus checks, and SNAP.

“In most communities, more people were eligible for the social safety net, and that protected them from the kind of extreme hardship that Chelsea went through,” Liebman says. “Chelsea was facing a massive hunger problem because the community was hit harder from a health standpoint and from an economic standpoint by COVID than just about any other community in the country.”

Chelsea launched a massive food-distribution program, but in September 2020, City Manager Thomas Ambrosino and other officials decided to pivot to direct financial aid so that residents could buy their own food with cash cards issued through a program called Chelsea Eats. The city also partnered with the Rappaport Institute to study the program and its effects.

“I think the fundamental insight that Tom Ambrosino had,” Liebman says, “was ‘Let’s give people income and let them make their own decisions so that they can buy the kinds of food they want and also meet other essential needs—whether that ends up being diapers, clothing, or cooking oil.’”

Data showed that around 65% of the money distributed through Chelsea Eats was spent on food, contrary to the fears of skeptics. “Comparing those who got the cash cards and those who didn’t, the people who received the cards consumed more food, were more satisfied with what they had available to eat, and were more likely to say their financial situation had improved,” Liebman says.

“It is unusual to have data on such a large sample of economically vulnerable families who were ineligible for most federal benefits,” Liebman says. “One of the things the Chelsea experience demonstrates is just how important the U.S. safety net is.”

Photographs by Spencer Platt/Getty Images, Marcio Jose Sanchez and Matt Rourke/AP Photo, Tom Lee, Kevin Dietsch, and Robert Nickelsberg/Getty Images, Brianna Soukup, Jahi Chikwendiu, Lucy Nicholson/Getty Images and Luke Sharrett/Reuters, and Pat Greenhouse/Getty Images

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