Science, Technology & Inequality

Who or what is responsible for the recent increases in income inequality?

 

Some possible answers are new technologies, including robotics and advances in communication technology. Eli Whitney, inventor of interchangeable parts, said that technology substituted machinery operation for the skill of artists. Now our most skill-biased technological advance, the microchip, can be used in scanners to aid unskilled workers, as well as in personal computers to aid skilled workers. The supply of skilled workers increased more rapidly since 1970 than in the 30 years previous. Yet the U.S. labor market experienced a large increase of within-group inequality. This inequality between workers with similar education indicates some new and powerful forces.

 

One theory is that it was caused by the technological revolution. But technology arises from within, in the decisions of companies and workers the same way employment and wages are decided. So perhaps the increase in skill-bias was due to changes in profit opportunities made possible by the increased supply of skilled workers. Technological change will always be directed towards profit. If developing skill-biased techniques is more profitable, then new technology will be skill-biased. Technologies that are used more in the production of expensive goods will be more in demand, and the invention and improvement of these technologies will be more profitable. The first item that determines the profitability of a technology is its market size. Machines used by a larger number of workers will increase profits. It is through this effect that the increase in the skills supply induces technology to become more skills-biased. The production of skill-complementary machines and technology make the skill premium higher, which causes more returns to education. Trade affects which technologies are profitable, and causes an increase in the price of skill-intensive products. This affect the LDCs (least-developed countries) that are also using this technology.

 

The organization of production, jobs, and how employers are recruiting, are influenced by this large supply of skilled labor. Jobs are designed specifically for them, and exclude low and middle-skilled workers. Organizational change shifts resources away from low-skilled workers. The decline in the real value of minimum wage, globalization, and loss of unions may be potential causes of inequality. Since the late 80s, there has been an explosion in CEO pay which suggests changes in social norms regarding inequality and fairness. There may be a link from changes in technology to changes in labor market institutions and social norms. Inequality might also increase due to well-paid individuals who may decide to reduce support for the welfare state or redistribution programs. This would mean that technological change can affect inequality, especially if it affects social norms to where it is acceptable for CEOs to be paid much more than workers. Interesting to note is that inequality increased in English-speaking economies, though to a much lesser in continental Europe. So far, there is no consensus as to why, but perhaps it has to do with wage compression making low-skilled workers more expensive to employ. Aiding unskilled workers with new technology has potential to raise the value of their productivity.