Is Technology Causing Increased Income Inequality?

In recent years, the charge per unit of productivity growth, both in the US and in every major economy worldwide, has slowed. At the same time, and particularly in the The states, we've seen an increase in income inequality, with the tiptop 1 percent seeing increased income while compensation for median-wage workers has been close to flat for decades. Are these ii trends related? Or are there other factors at play?

This was the subject of several presentations at a conference I attended at the Petersen Institute for International Economics.

Since I take recently heard a number of economists debate the implications of artificial intelligence and automation on productivity, wages, and employment, I was curious whether or non presenters at the Petersen Plant would portray technology-related changes in the workplace every bit driving income inequality.

At the conference, a paper given by Quondam Treasury Secretary Lawrence Summers and Anna Stansbury demonstrated that in general, productivity improvements all the same lead to growth in median income, and suggested that progress in technology is not depressing income. Instead, Summers and Stansbury propose that other factors may be responsible for the recent productivity slowdown. And in another presentation, sometime Chairman of the Council of Economic Advisors Jason Furman (top) pointed to the creation of fewer firms, lower mobility, an increasing concentration of wealth, and monopolies as more than of import factors in flat compensation.

The bespeak of the conference was to examine what might happen if productivity continues to stay low, and participants discussed how such a reality would touch on debt sustainability and tax policy, noting that the affect in these areas depends by and large on what happens with interest rates and inflation. There was some argue as to whether or not productivity growth really drives existent interest rates, though there was a consensus that productivity growth does pb to improved living standards over time.

Based on what I am hearing at most engineering science conferences, there is a belief that we're seeing faster technological alter than ever earlier, which is increasing disruption in the workplace and also driving income inequality. Only based on the economic statistics and what I hear at economics-oriented conferences, I wonder if the problem is actually that we're seeing less technological change in well-nigh of our organizations than what we were accepted to in the past, and that has resulted in lower productivity growth.

Is Reduced Dynamism and Competition Causing Lower Productivity Growth and Increased Inequality?

Furman, also a professor at Harvard, and Peter Orszag, of Lazard and former Manager of the Office of Management and Upkeep, shared research that sought to determine if the productivity slowdown and the increase in inequality share a common cause.

Furman said that between 1948 and 1973 productivity increased at 2.eight percent per twelvemonth, simply that since 1973, this has dropped to i.87 percent. Between 1948 and 1973, 90 percentage of the population saw an increase in their share of income, while the top i pct of earners saw their share drop; since 1973, that tendency has reversed, which has atomic number 82 to increasing inequality.

Furman said the traditional explanation has been that skills-biased applied science change leads to inequality, simply he argued that reduced dynamism and reduced competition were the mutual crusade behind both the productivity slowdown and the increase in inequality.

For evidence of reduced dynamism in the economy, Furman pointed to the creation of fewer new firms in the economy, and much less hiring by "young firms," or firms less than five years old. He also discussed research that shows the rate of both task creation and task destruction is in fact declining, and that there is less migration of people, presumably previously driven by economical opportunities. Much of this runs counter to the prevailing narrative that technology is causing rapid change in the task market. (See my before stories from the contempo Techonomy and Fortune Begin conferences.)

Regarding reduced competition, Furman noted that we've lately seen an increment in the rate of return on uppercase, even though concern investment has trended down. Meanwhile, concentration has increased in most sectors of the economy.

Furman listed several possible explanations for this: We could be seeing more natural monopolies, particularly with network externalities favoring the large tech companies. We seem to exist having less antitrust enforcement, with the agencies not objecting to smaller mergers in particular. Common ownership has grown, due to the growth of mutual funds and similar instruments. Land use restrictions and occupational licensing may be contributing to lower mobility. Furman said we are seeing more differences in productivity and inequality across firms merely less within them, as most of the benefits of productivity are going to the highest-performing firms. In the end, Furman said that it comes down to policy decisions, and he said we have an opportunity to make both improving productivity and equality part of the economic calendar by reducing the barriers that people and businesses face.

Productivity and Pay: Is the Link Broken?

Quondam Treasury Secretary Lawrence Summers, currently of Harvard University, and Anna Stansbury, likewise of Harvard, presented a paper looking at the link between productivity and pay.

Summers talked most studies which show that real wages and productivity used to runway together, but since 1973, that behavior has inverse. Only since 1973, though productivity has risen—at a slower rate than previously—the wages of median workers accept been relatively flat.

Summers wonders if that ways that raising productivity growth no longer raises the average American'south income, or whether the subtract is the result of other changes that have occurred since 1973, including the reduction in labor bargaining points, or contest from other places.

Taking a look at the statistics represented visually, Summers said, productivity and bounty seem to track together, though bounty growth has been slower, and it looks likes the two are linked, despite fluctuations in productivity growth versus wage growth.

Stansbury went into greater particular, and showed that in times of college productivity growth, the typical American worker has seen higher pay growth, this being the case for both the median worker as well as production/nonsupervisory workers' (as defined by the Bureau of Labor Statistics) compensation. Summers and Stansbury estimate that a 1 percent increase in productivity growth is associated with 2-thirds to 1 per centum higher median pay growth, and half to two-thirds of a pct higher pay growth for production/nonsupervisory workers.

Looking at the numbers, Stansbury said, the gap between productivity and wages increased less during productivity booms than during productivity slowdowns, only she said they saw "no evidence productivity growth is causing stagnation."

Summers pointed out that if the ratio of bounty between the mean and median worker was the same in 2022 equally it was in 1973, median bounty would have been around 32 per centum college. Based on the numbers, he said that if the rate of productivity growth since 1973 had been the same equally it was between 1948-1973, mean compensation would have been 59-76 percent higher, and median compensation would take been 65-68 percent higher. In other words, he said, "success in increasing productivity growth is likely to translate into wage growth."

Summers said this work has fabricated him more skeptical of technology-based explanations for increased inequality. The paper shows inequality tended to ascent faster during the productivity slowdowns of 1973-1996 and 2003-2015 than during the productivity booms of 1948-1973 and 1996-2003.

Summers wasn't sure almost Furman's hypothesis on monopoly power and dynamism, and said that while his ideas were broadly consistent with their findings, the hypothesis better explained the falling labor share of the economic system than the share of relative wages between the hateful and median workers. He said the general tendency to outsource would be expected to create more inequality without monopoly power, and said he thought most of the changes in concentration were non due to mergers, simply rather to organic growth in firms such as Facebook and Google.

Reacting to these presentations, Jaana Remes, an economist and partner at the McKinsey Global Found, agreed that in that location was evidence that productivity and pay were "delinked."

Simply Remes noted that manufacturing has contributed ii-thirds to the decline in labor'south share of United states of america GDP, and while at that place are many possible factors—such as the declining power of unions, automation, offshoring, and outsourcing—she said information technology isn't obvious what the connectedness to wages is. She said low growth in wages reduces the incentive to invest in automation.

Regarding Furman'south paper, Remes said she saw no show that rising corporate concentration has contributed to the productivity growth slowdown. She noted that at that place has been much college concentration in the automotive parts manufacture since 2004, but that that industry has seen significant productivity improvement. Similarly, she said the rise of large-calibration retail stores—and more than recently e-commerce—has led to both more than concentration and more productivity.

Remes said both papers should meliorate our understanding of the what's going on here, merely added that "our job is far from washed." In particular, she pointed to the "digital transformation" that is happening to the economy, and said nosotros have a long way to go before we empathize it.

HTML MODULE 4165

Source: https://sea.pcmag.com/feature/18401/is-technology-causing-increased-income-inequality

Posted by: estellhosess.blogspot.com

Share this post