Monopoly power to blame for inequality: Fed paper

Monopoly power to blame for inequality: Fed paper
© Greg Nash

An increase in monopoly power over time can explain a slew of economic ills, including income and wealth inequality, the declining share of returns that go to workers and the increase in profits, according to a Federal Reserve research paper.

The paper, by Isabel Cairo and Jae Sim, says that for four decades, these trends have grown alongside financial instability and several other concerning trends.

"The fact that the six secular trends have realized over a time period in which the investment-to-output ratio has steadily declined suggests that the rise of market power of the firms may have been the driving force of the six secular trends," the authors find.

To battle the trends, the authors suggest increased taxes on dividends alongside expanded social safety net spending, which they said would not distort markets.

The paper touches on issues that have become key topics in politics, such as stagnant wages, rising inequality and booming corporate profits.