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January 20, 1995
"Technology's Inequality: If You Know How to Use It, You'll Have a Higher Income -- But Maybe Not Forever"
San Jose Mercury News
By Timothy Taylor
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THE DISTRIBUTION of income is becoming less equal, and economists are fairly confident that they know why. The interesting question is whether the forces creating this inequality will gradually reverse themselves.

Although the trend toward greater inequality didn't receive a lot of publicity until the 1980s, it actually dates from the late 1960s. The top fifth of the income distribution received about 40 percent of all income in 1968, but was receiving 44 percent of all income by 1990. Much of that gain went to the very top.

It's been popular to blame this trend on conservative policies during the 1980s, like cutting taxes for the wealthy and welfare for the poor, but that explanation doesn't hold up very well.

After all, the trend toward inequality started well before Ronald Reagan took office. Most of the greater inequality is in pre-tax incomes; that is, the inequality is being generated by the labor market, not by political decisions. Other countries like Canada, Sweden, Germany and Britain have also seen greater inequality over this time -- and it's hard to blame their wage distribution on the tax and welfare policies of America's Republican Party. Finally, even after President Clinton increased taxes on the very wealthy, statistics show this trend toward inequality continuing.

Why is the market producing greater inequality? The mainstream view among economists is that the new communications and information-processing technologies have magnified the earning power of those who have the education, skills, flexibility and resources to take advantage of the new opportunities. Meanwhile, others are being left behind.

Is the trend toward greater inequality part of a cycle, or is it likely to be permanent? To ask the question in another way: Will it continue to be true that new technology will give a disproportionate advantage to the most skilled labor?

Paul Krugman, a Stanford economist, has speculated on this question in articles in the Autumn 1994 issue of the Wilson Quarterly and the fourth quarter Economic Review from the Federal Reserve Bank of Kansas City.

He points out that the Industrial Revolution of the 19th century also tended to produce greater inequality, as the owners of capital benefited from hiring unskilled workers. As thinkers like Karl Marx projected the trends of that time, it seemed obvious that the gap between capitalists and workers would widen forever, until the proletariat was impoverished and ready for revolt.

But from 1920 to the late 1960s, the new technologies only worked well when combined with well-paid workers of moderate skill. For example, think of the manufacturing workers in steel and auto plants. During this period, new technology promoted greater equality of incomes.

The tide turned once more during the late 1960s, when technology started again producing greater inequality. Might it turn again? Krugman thinks so. He writes: "I suspect, then, that the current era of growing inequality and the devaluation of ordinary work will turn out to be only a temporary phase."

Today, it is costly and time-consuming to acquire and learn to use the new information and communications technology, so the benefits go to a relative few. But as these technologies become cheaper and more user-friendly, their economic benefits will become more widespread.

Krugman writes: "The time may come when most tax lawyers are replaced by expert systems software, but human beings are still needed -- and well-paid -- for such truly difficult occupations as gardening, house-cleaning, and the thousands of other services that will receive an ever-growing share of our expenditure as mere consumer goods become steadily cheaper. The high-skill professions that have done so well during the last 20 years may turn out to be the modern counterpart of the early 19th-century weavers, whose incomes soared after the mechanization of spinning, only to crash when the technological revolution reached their own craft."

In this vision, better software will take over a lot of today's high-paid jobs. The middle-class jobs of the future will be things like home health care, service for computers and other gadgetry, personal organizers, child care, vacation and recreation, and preparing and delivering meals to busy households. In the future, these jobs will make use of the new technologies in ways we can barely imagine today.

Krugman is optimistic enough about these trends to write: "I predict that the current age of inequality will give way to a golden age of equality."

In the short run, greater economic inequality offers a nasty choice: either accept it, and the social strains it imposes, or fight it by taxing and transferring income, with all of the well-known built-in disincentives of the welfare state. But at least there is some reason to hope that we will not be trapped between these choices forever.

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