The given sentence is missing in the paragraph below. Decide where it best fits among the options 1, 2, 3, or 4 indicated in the paragraph.

Sentence: Productivity gains, once expected to feed through to broader living standards, now primarily serve to enhance returns to wealth.

Paragraph: Economists now argue that inequality is no longer a by-product of growth but a
condition of it._____(1)______ . Unlike wages, wealth reflects not just income but also access to assets, favourable institutional conditions—such as low interest rates—and public policies like low taxes and housing shortages.______(2)______. In other words, wealth depends on political choices in ways that income currently does not. It’s not just the inequality itself that is the issue but the erosion of mechanisms that once constrained it. _____(3) ____. Wealth and income inequality are linked, but where wages have stagnated and collective bargaining has weakened, capital income—derived from profits, rents and interest—has been boosted by design. _____(4)______

The correct option is Option 3.

Explanation:
To determine where the sentence best fits, we must analyze the logical flow of the paragraph and how the sentence connects the preceding and succeeding thoughts.

Let us look at the sentence to be inserted:
"Productivity gains, once expected to feed through to broader living standards, now primarily serve to enhance returns to wealth."
This sentence highlights a shift: gains from productivity no longer translate into better living standards (wages/income for the general public) but instead go toward increasing returns on wealth (capital/assets).

Now let's examine the context around position (3):
Before position (3), the text states: "It’s not just the inequality itself that is the issue but the erosion of mechanisms that once constrained it."
Immediately after position (3), the text states: "Wealth and income inequality are linked, but where wages have stagnated and collective bargaining has weakened, capital income—derived from profits, rents and interest—has been boosted by design."

Inserting the sentence at position (3) creates a perfect transition:
1. The sentence before (3) introduces the idea that the mechanisms constraining inequality have eroded.
2. The inserted sentence provides a concrete illustration of this erosion: productivity gains, which previously would have lifted general living standards (a historical constraining mechanism), are now redirected to enhance returns to wealth.
3. The sentence after (3) then explains the exact mechanics of this shift: wages (representing broader living standards) have stagnated, while capital income (representing returns to wealth) is boosted by design.

Therefore, the sentence fits most logically at position (3), bridging the discussion of eroded constraints to the specific contrast between stagnating wages and boosted capital income.