Is technological progress behind growing income inequality?

Zsolt Darvas

Chapter 11 in Global Economic Modeling:A Volume in Honor of Lawrence R Klein, 2018, pp 256-276 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Income inequality might be boosted by skill-biased technical change, which shifts production to technology that favours skilled over unskilled workers and thereby might increase the wages of skilled relative to unskilled workers. Robotisation and globalisation might also increase income inequality, due to the reduced number of jobs and reduced wages of certain less skilled workers. However, we cast doubt on the hypothesis that technology-driven developments were a major factor behind rising inequality in the United States and some other advanced countries. Despite many similarities in labour market developments, the skill premium and income inequality evolved differently in the United States and the European Union. We show that the United States was an outlier to the cross-country relationship between the unemployment rate of tertiary-educated workers and their pay rises, and also an outlier to the relationship between the share of tertiary-educated workers and their wages relative to lower-educated peers. Therefore, even though our analysis suggests that technological change tends to favour those with greater skills, it is hard to see how this has contributed to rising income inequality. Other factors, such as redistribution, social protection and education policies or the regulation of certain professions may be more relevant.

Keywords: Econometrics; Modeling; International Economics (search for similar items in EconPapers)
JEL-codes: C01 (search for similar items in EconPapers)
Date: 2018
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