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Is income inequality being driven by the effects of new technologies?
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Tech unicorns exploit gig economy workers.
The contractors of Uber, a company that uses software to assemble and distribute drivers, do not do well financially despite the company being valued at $82 billion. The Guardian reported that in New York, 2 in 5 Uber drivers rely on Medicaid and almost 1 in 5 on food stamps.
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Insecure work is a growing trend, and it's contributing to income inequality. App companies are partly to blame.
Around the world, insecure work is on the rise and app companies are partly to blame. In the UK, ONS data shows that between 2008 and 2018 there was a tenfold increase in the number of people on zero-hours contracts (from 143,000 in 2008 to 1.6 million in 2018).
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Automation has decimated manufacturing employment in the USA.
There are 5 million fewer manufacturing workers than there were in 2000—yet American factories are far more efficient than they were in 2000. The reason is that factory work is becoming automated.
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While automation may be a contributing factor, there are other reasons for the decline in US manufacturing jobs.
Study shows that job losses are to do with global trade. Chinese imports and multinational offshoring have meant job losses, as has real appreciation of the dollar since 2000.
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Labor union membership has declined by half since 1983 (during which time income inequality has grown rapidly).
In the USA, membership of unions was around 20.1% of all workers. In 2015, the percentage was 11.1%. Unions can help workers gain more in compensation for their labor.
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Leading international economics organizations don't believe trade drives income inequality.
The OECD, a major intergovernmental economic organization, finds that trade has had very little impact on income inequality. One study they cite (Jaumotte et al., 2008) even shows that imports from developing countries can mean income inequality falls.
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Outsourcing and international trade have cost millions of jobs and, in doing so, has contributed to income inequality.
The US Department of Labor reported that some 3 million workers lost their jobs as a result of competition from imports. Trade is a major driver of income inequality in the USA.
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Artificial intelligence is projected to create more jobs than it will displace.
The World Economic Forum estimates that by 2022 machines and algorithms will put 75 million people out of jobs but in doing so create 133 million new jobs.
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Skill instability will mean new jobs relating to artificial intelligence benefit higher-skilled employees more.
By 2022, 54% of people will need to reskill for 6 months to a year. 41% of employers are found to be prioritizing those employees already in high-value roles. This will create more wage polarization and, in turn, increase income inequality.
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Historically, income inequality has grown during periods of technological progress.
The Industrial Revolution was a period in which new technologies (like manufacturing processes) led to fast economic growth. But income inequality grew in the 18th and 19th centuries as land rent outpaced wage growth.
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By the end of the Industrial Revolution in Britain, everyone was reaping the rewards.
Between 1760 and 1860, the average wage per citizen doubled and the bottom 65% had an increase in average real income of over 70%. Things became better for lower earners as time went on; the initial rate of technological change was too fast for income equality to keep up.
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New jobs in blockchain have a much higher median salary than the US median—a prime example of new tech contributing to income inequality.
As Glassdoor reports, blockchain (a new technology for distributing digital information) has one of the fastest growing job opening rates in the labor market. The median salary for new roles in blockchain is $84,884, which is $32,000 higher than the US median ($52,461).
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Data shows industrial robotics sales have more than doubled since 2013.
The IFR (International Federation of Robotics) reported that in 2013 a total of 178,000 industrial robotics units were sold worldwide. In 2017, that total rose to 381,000.
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New technologies have led to the flourishing of labor-market opportunities.
The growth of knowledge-intensive sectors, aided by new technologies like the computer, has led to the creation of new jobs. In the UK's 1871 census 9,832 people in England and Wales reported that they were accountants. 140 years later, 215,678 people are accountants.
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Relationship trends are contributing to income inequality.
In the 1990s, the proportion of couples in which each partner earned a similar amount was 33%. Today, it is 40%. It's becoming increasingly likely that people choose partners with similar social background. But this has led to the concentration of income among fewer households.
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Significant social changes are affecting income inequality statistics. For example, single-parent families.
In OECD countries, the proportion of single-parent families has grown from 15% in the 1980s to 20%. In the USA, where income inequality is very high, the proportion's over 25%. Single-parent families rely on just one paycheck, ie limiting the potential income of those households.
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Technology has led to the expansion of the financial industry—an industry whose high salaries have contributed to income inequality.
The economic system in the West is increasingly dependent on the global financial industry. In Europe, workers in the financial sector make up 1 in 25 of the total workforce. But in terms of earnings, they account for 1 in 5 of the top 1%.
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Top tax rates have fallen in developed countries, furthering income inequality.
Across OECD countries, the average top marginal tax rate in 1981 was 66%. By 2008, this average had fallen to 41%. Top earners have not only been able to earn more, but they've also benefited from the investment opportunities that greater earnings afford.
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Reductions in welfare can amplify income inequality.
The ONS reports that, in 2018, the poorest 20% of UK citizens saw a 1.6% decrease in income, as a result of a drop in welfare spending. The reduction of government support has furthered income inequality.
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Part-time employment increased by almost 50% over the 1990s and 2000s.
The OECD reports that across developed countries part-time employment averaged 11% in the mid-1990s. By the end of the 2000s, part-time employment averaged 16%. Since part-time earners tend to earn less, this trend has contributed to income inequality.
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Out of all the drivers, technological advances have contributed the most to income inequality.
The IMF (International Monetary Fund) reports that technological advances account for nearly 1/3 of the rise in income inequality (between the top and bottom 10%s) over the last 25 years. Technology tends to increase the demand for skilled labor (more so than low-skilled labor).
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New technologies replace labor.
England and Wales census records show that, in 1931, there were over 150,000 workers in the business of washing clothes. By 1971, after the washing machine became widespread in the 1950s and 1960s, census data shows that the number of workers halved.
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Market saturation has meant employers keeping wages as low as possible.
Keeping wages low means businesses can keep the prices of their products low, but this is contributing to income inequality. Wal-Mart employs 1.4 million US citizens but has reduced employee pay to offer more competitive consumer options.
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Yes—technology is one driver of income inequality. But income inequality is nonetheless cyclical.
Leading economist Branko Milanovic argues that rises and falls in income inequality happen periodically, and the effects of technology are benign. Archival data since the 13th century clearly show waxing and waning.
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Financialization is a stronger driver of income inequality than technology.
International Labor Organization finds that financialization (the process through which financial institutions increase in power and size) accounts for 46% of fall in labor income shares, whereas technology only accounts for 10%.