Because more equal societies work better for everyone

Technology

The economically orthodox explanation for income inequality sees technology as a key driver of economic inequality1:

  • Across the globe, rapid technological change decreases the demand for low skilled workers, whose work can be automated, and increases the demand for educated workers who work in new technology based jobs2.
     
  • The relationship can be thought of as a race between efforts to increase education (and shift people from being low skilled to being educated workers) and the pace of technological development3.
     
  • The progress of technology across countries has been measured (by looking at the proportion of company spending put towards developing new technology) and found to be associated with inequality4.

A different theoretical model on the impact of technology on income distribution suggests that inequality ‘hollows out the middle’:

  • Technological change decreases the importance of medium skilled workers who perform routine tasks that require precise and well-understood procedures such as jobs involved in manufacturing. 
     
  • It does not affect low skilled workers who do non-routine tasks that require people to adapt to the situation they are in like jobs in service industries (e.g. cleaners or careworkers). This leads to the observed increases in the number of high wage and low wage jobs as seen in the UK between 1975 and 19995
     
  • Technology allows people to create businesses with relatively few employees that can generate very high levels of income. For example, a company consisting of less than 20 people can create software worth millions of pounds. As there are few employees, the income has fewer people to be shared between and therefore allows a small number of people to have very large profits6.
     
  • In the UK between 1984 and 2004 there has been an increase in professional and technical roles (3.4% and 4.25% respectively) and a decrease in skilled trade occupations, plant and machine operatives and elementary occupations (e.g. cleaners, farm workers and other low skill practical work) (-5.0%, -3.9% and -4.8% respectively)7.

Criticisms and issues

There is disagreement as to what extent disproportionately high pay at the top of the pay distribution is explained by the argument that inequality is driven by technology8:

  • Some research suggests that rather than being the result of a market reacting to technology, increases in high pay come as a result of rent seeking behaviours by corporate executives and financial professionals. Rather than those at the top generating higher productivity they instead use artificial methods to boost their income at a far greater rate than any increase in value of their companies9.
  • Other research suggests that labour market developments and changes in employment structure don't neatly map against increasing wage inequality with occupational employment changes and wage gaps between the middle and bottom have not changed as would be predicted by technology focused theories10

Technology also amplifies the effect of other drivers of inequality and can be hard to separate from these drivers. Technology increases globalisation's effect on inequality as it makes it easier to move jobs to other countries. The power balance within a workplace is also altered by technology which removes consequential decisions from lower-paid employees. For example, truck drivers used to have more autonomy over their routes and timings however now technology allows for their trucks to be satellite monitored and timings dictated11.  


[1] (Kierzenkowski and Koske 2012)

[2] (IMF 2007)

[3] (Kierzenkowski and Koske 2012)

[4] (Ballarino, et al. 2012)

[5] (Kierzenkowski and Koske 2012)

[6] (Kaplan and Rauh 2013)

[7] (Anderson 2009)

[8] (Kierzenkowski and Koske 2012)

[9] (Piketty 2014)

[10] (Schmitt, Shierholz and Mishel 2013)

[11] (Guy and Stott 2005)

 

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