Technology and Inequality: reasons for concern, reasons for optimism Mark Stabile Stone Chaired Professor of Wealth Inequality Professor of Economics INSEAD
Outline What s the inequality problem? What s worked in the past and what s not working now? What s going to happen next? How do we think about inequality and digital transformation?
The Global Financial Crisis & Recovery 6 Real GDP Growth Rates 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-2 -4-6 Japan United Kingdom United States EU-27-8
1949-53 1954-57 1958-60 1961-69 1970-73 1975-79 1982-90 1991-00 2001-07 2009-12 2009-13 Percent Recovery has not been equal 120% United States: Distribution of Average Income Growth during Periods of Expansions - Bottom 99: Top 1 [1949-2013] 100% 80% 60% 40% 20% 0% Source: Authors calculations based on data from The World Wealth and Income database Bottom 99 Top 1
1913 1916 1919 1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Percent Top 1% Income Shares in the US with and without Capital Gains [1913-2013] 0,3 0,25 0,2 0,15 0,1 0,05 0 Top 1% Income Share-Capital Gains Excluded Top 1% Income Share-Capital Gains Included Source: Author s calculations using World Wealth and Income Database
1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Top 1% Income Share, Percent 18% 16% UK-Top 1% Income Share [1951-2013] UK-Top 1% income share-married couples & single adults 14% 12% UK-Top 1% income share-adults 10% 8% 6% 4% 2% 0% Data from OECD Stat and The World Wealth and Income Database Author s calculations from WWI database
1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Top 1% Income Share, Percent 25% France- Top 1% Income Share and Gini [1915-2011] 20% France- Top 1% income share 15% 10% 5% 0% Data from OECD Stat and The World Wealth and Income Database
Why the rise? Combination of market forces and policy choices Increased globalization A decline in top marginal tax rates Changes in bargaining and political power Skill bias technological change and the return to labor
Connecting inequality and social mobility Does the American Dream still exist?
Mobility in the OECD Intergenerational income elasticities among men Larger number means less mobility
The Fading American Dream Chetty et al (2016)
Corak, 2011 Larger number means less mobility Corak, 2013
Recent responses to inequality coupled with stagnant growth in the middle We are seeing movement away from traditional public policy responses toward protest oriented responses. People feel insecure (economically and physically) and are reacting to that insecurity. Occupy movement Brexit Trump The growth of far right political parties What s next?
Is Business A Force for Good? Change in real income between 1988 and 2005 (in 2005 international dollars) The very poor India China catch-up Decline of the middle class in rich countries Rise of the 1% Source: Branko Milanovic
Technology and Inequality What s the connection between technology and inequality? Skill-biased technological change explanation from above. Does well at explaining some periods. Not others.
Technological changes over the past century Source: Card and Dinardo, 2002
The race between education and technology Source: Acemoglu and Autor, 2012
Up to 1.2 billion workers automated?
McKinsey, 2016
We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come namely, technological unemployment. Keynes, 1930
Employment growth is greater when there are more job titles Acemoglu and Restrepo, 2016
But how does this effect inequality? If new tasks are more complex, they will favor high skilled workers, leaving others behind. If, over time, these skills become more available to all workers, there will then be catch up (e.g. computers). But over time is a key part of the analysis. The same people that are currently losing work are not (for the most part) the ones that will get the new jobs.
So what do we do? Innovation and transformation will, of course, continue. Some will (hopefully) even help instead of hurt inequality. Need to couple this with interventions that will preserve innovation while managing inequality and labor market disruption. Basic income Changes in education Redistribution (both to curb inequality and to fund the above)
Thank you. Mark Stabile Stone Chaired Professor in Wealth Inequality and Professor of Economics mark.stabile@insead.edu