How Does Greg Mankiw Know that Wage Inequality Is Due to Technology?

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Sunday, 10 February 2013 06:30

As opposed to alternatives like macroeconomists who lack skills in running the economy? Mankiw asserts as a fact that technology is responsible for the upward redistribution of income over the last three decades, but it is not clear that the evidence supports his story. After all technology had a much larger impact in increasing productivity in the decades from 1947 to 1973 yet workers shared in these gains more or less equally.

If technology explains the shift those who try to explain the timing of the process, like M.I.T. professor David Autor, have had a difficult time making their case. The villains that some of us would point to are anti-union measures by government and businesses that have weakened workers' bargaining power, trade policy that was designed to put less-educated workers in competition with people in the developing world while largely protecting the most highly educated workers, patent and copyright policy that increased the rents pulled out of the economy for these monopolies, and macroeconomic policy that has led to more unemployment in the last three decades than in the early post-war period. High unemployment tends to disproportionately hit less educated workers, both by having more impact on their probability of being unemployed and reducing their wages.   

It is easy for Harvard economic professors to assert that technology is the cause of inequality. It is much more difficult for them to produce the data to prove their case.