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Home Publications Blogs Beat the Press The Old Blame Technology for Inequality Story

The Old Blame Technology for Inequality Story

Thursday, 29 August 2013 16:43

There are a lot of economists who are determined to say that technology is responsible for inequality rather than policy. There are many parts to this story that seem absurd on their face.

Are doctors, dentists and lawyers really whizs at technology? These occupations make up a very large share of the 1 percent. They sustain their income the old-fashioned way, they have the government arrest the competition. When more middle income workers like nurses and computer engineers start to see their pay rise, their employers run to the government whining about shortages so that they can bring in foreign workers to keep down wages. 

The financial sector has become a fraud factory. Top executives at banks can pocket tens or even hundreds of millions of dollars off various illegal schemes and never fear more than repaying a portion in penalties. And of course the laws that protect workers' right to organize unions have become a joke, while the laws that protect employers from organized workers remain sacred. (Union officials who openly support a secondary strike don't risk a slap on the wrist from the National Labor Relations Board, they go to jail.)  I could go on (and do).

But there is a big market for economists who produce stories saying that the problem is technology, so there will be economists who respond to the demand. Brad Plummer gives us a couple of examples in a recent blogpost.

The first is from Catherine Mulbrandon of Visualizing Economics. She gives us a graph which is supposed to show us that the industries that pay in the middle of the wage distribution are shrinking, while industries at the top and bottom are expanding. This is the story of wage polarization, with a disappearing middle.

Perhaps I have a problem with my eyesight, but it's hard to see that story in the graph. The industry with the biggest increase in employment over the period from 2001 to 2011 is health care and social services, which sits almost directly on top of the line showing the average for all industries. Manufacturing, which is somewhat above the average pay rate, shows a big decline as we all know. However the industry grouping "professional, scientific, and technical services," which is only slightly higher on the pay scale, is number 3 in job growth over this period.

Retail, which is definitely towards the lower end, is a big source of job loss over this period. Education services, which is closer to the average wage than manufacturing, is a big job gainer. If wage polarization is going on, you won't know it from this graph.

The second graph, which comes from Joshua Lerner of the Oregon Office of Economic Analysis, does a little better job of telling the story. This one shows occupations by average pay and we do see that the 2nd highest of four groupings is not doing very well in the job creation category.

But even here the story is less compelling that the proponents of the technology did it story might hope. Sales, which is just below the wage cutoff that would make it a middle wage job, saw the second fastest growth for all occupations over this period. It's also worth noting that people always take bad jobs in a weak labor market. The fact that restaurant employment has been growing rapidly tells us much more about the state of the labor market than the demand for restaurant workers.

The two big losers in the middle wage category were construction workers and teachers. The former look to be far more the victims of a collapsed housing bubble than technology.

The latter were primarily victims of budget cuts at the state and local level that were forced by members of Congress who don't believe in economics. It's hard to make this a technology story unless we somehow think that technology is responsible for putting political power in the hands of economic creationists.

This issue has been looked at more systematically. My colleagues and friends, John Schmitt, Heidi Sheirholtz, and Larry Mishel, examined the growth in occupations by wage level, following the work of David Autor and David Dorn. They found that the story of wage polarization fits the pattern of the 1980s to some extent, but it doesn't fit the pattern of the 2000s at all.

In spite of their demolition of the Autor-Dorn thesis, we can continue to see the wage polarization story pop up in endless different permutations. Clearly some folks have a reason to believe.

Comments (9)Add Comment
written by watermelonpunch, August 29, 2013 10:36
Yeah well the facts back up these technology = inequality ideas, after all.
I mean the countries with the least inequality, like Sweden, Norway, Germany, Australia, Canada... They are all still toiling in the dark ages with stone knives & bear skins.
For now, they have great equality.
Once those countries get robots, computers, cell phones, the internet, and modern appliances, a few highly deserving citizens in those countries will reap the benefits of modern technology, while the losers, rightfully, perish.

I don't know what to think about this kind of stuff anymore.
Where Are the New Middle Class Jobs Coming From?
written by jerseycityjoan, August 30, 2013 3:07
It seems to be we've lost far more middle class jobs since 2007 than we have gotten back.

There are tens of millions of Americans like me who wonder where on Earth the good paying jobs for average people -- those with educations ranging from high school diplomas to bachelor's degrees -- are going to come from.

What new industries or innovations in the private sector are going to lead to the tens of millions of new jobs that we will need?

We could use 10 million middle class jobs today.

Where are they?

When are they coming?

If they aren't going to be there, for whatever reason, it's past time to let the American people know.
the long cycle
written by pete, August 30, 2013 7:32
Peak equality was 1968. In the 1920s, we were about where we are now. That was after massive increases in production. Thus, things got spread out more until 1968. Since then hundreds of dot com workers endowed with stock options etc. So just as the Kennedy, Chase, Carnegie, Vanderbilt, etc. money was dispersed over a few generations, the Gates and Jobs money will spread out.

Now monopolization of labor, say at the doctor level, is a serious issue. Opening the borders might drive down monopoly wages whereever they exist, and where they can be determined competitively.
News without Dean Baker is risky to sanity (rant)
written by JaaaaayCeeeee, August 30, 2013 8:01

Even President Obama, in a speech that was supposed to honor Martin Luther King, said technology and globalization are what's lowered workers' ability to get good wages!

News just cycles through debunked structural unemployment, debunked skills mismatch excuses, debunked technology excuses, debunked inevitability of globalism meaning lower than living wages, debunked monopolists' fake free trade agreements, debunked delays in derivatives and financial reform, debunked government-as-crowding out job creators, debunked dependency increasing unemployment, and demonstrated futility of voter calls for enacting policies that 90% want and functional democracies have.

Our news is full of war drums, reporting of opposing outrage and spin, personality politics, green lanternism, and only those pocketbook issues which can be restricted to divisive, zero sum, status quo promotion. Who knows when we'll get reporting and debate to assess secret courts making secret laws, or surveillance that may be as ineffective as overpriced?

At this point it's easier to imagine us going to war than voters or their representatives debate and enacting fair trade agreements, responsible fiscal policies and tax incentives, and regulating finance or campaigns.
Squaring the Circle: Even Pay for Superstar Football Players is Determined by Technology
written by Last Mover, August 30, 2013 9:37

Imagine how ridiculous this argument would sound if applied, say, to the recent professional football issue of excessive head injuries. Who should pay for them? Who's reponsible for avoiding them? Does technology contribute to them or avoid them? Does technology influence the relative pay of players?

Imagine if the distribution of pay to players changed dramatically due to injuries, and some journalist reports that the cause is technology.

Specifically, because the technology of protective wear is so advanced, superstar players in particular take more risks, and the best ones earn increasingly more relative to others.

The journalist conveniently ignores the downside, that a substantial number of players lose income as well because of how the technology is applied rather than due to the technology itself. The journalist concludes that equal opportunity reigns for all players so unequal outcomes reflect differences in performance and nothing else, particularly omitting the role of injuries.

The journalist also ignores the fact that professional football players have a lot of leverage, along with the fact that in the end, it's worth it to their employers to correct the problem. And by correcting it, players generally continue to match their pay with performance aided by technology on a level playing rather than the lopsided effect it was having on injured players and potential future income.

But the journalist, fully brainwashed by the commonly reported link between income inequality and technology in general, proceeds as usual and writes a flawed story to fit a flawed theory, that the inevitable march of technology alone is what drives increasing differences in pay among football players ... just like it does for everyone else as well.
It is not "Either / Or"; It's "Both / And"
written by A Greek Bearing Facts, August 30, 2013 9:40
Most econommists who study trends in the wage distribution do not believe technological change explains 100%--or even 75% or 50%--of the 1979-2013 shift in the distribution of relative compensation. They simply think that technological change explains part of the shift. Many if not most would probably even agree with Dean Baker in identifying other reasons for the shift. One sometimes gets the feeling reading this blog, however, that it is almost a criminal act to conclude technological change can explain even 10% of the trend toward less equal compensation.
tech doesn't reduce jobs nor pay, productivity distribution policy does
written by JaaaaayCeeeee, August 30, 2013 10:22
Tech doesn't reduce jobs nor pay, productivity distribution policy does. This is right in the post, watermelon's snark, or, you could also use the search box in the upper right of this blog; try "unemployment technology" to see this explained many different ways, here's a recent one: http://www.cepr.net/index.php/...olicy-does
But What's Going To Happen In the Future?
written by jerseycityjoan, August 30, 2013 2:13
If we are going to only look at income inequality by looking at those with jobs, are we not leaving out a significant piece of the picture?

What about the people who don't have a job due to technological change? They are not included in the worker statistics, are they?

What about those who will lose a job in the future due to technological change? Will it matter what happened in the past, if a far greater number of people lose their jobs in the future?

What about this:

"Foxconn has been planning to buy 1 million robots to replace human workers and it looks like that change, albeit gradual, is about to start.

The company is allegedly paying $25,000 per robot – about three times a worker’s average salary – and they will replace humans in assembly tasks. The plans have been in place for a while – I spoke to Foxconn reps about this a year ago – and it makes perfect sense. Humans are messy, they want more money, and having a half-a-million of them in one factory is a recipe for unrest."


I think the anti-human worker argument made in the last sentence is one that is shared by many of our elite, they just might not say talk like that to a journalist.

There are 7 billion people on our planet right now; that will increase to 9 billion by around 2050. With the means to do things quicker and with fewer people while at the same time we are adding so many new workers to the worldwide labor market, why isn't revolutionary change that will be detrimental to workers not possible?

Frankly what seems close to impossible to imagine is that things won't get worse for most workers all over the world.
Of nurses and financiers
written by Rachel, August 31, 2013 7:42

In the SF Bay Area, nurses make around $120,000, due to the market power of the hospitals. So they're well into the top 10%. This is important since the ACA is pushing hospitals into more accumulation of medical practices, hence more market power.
The result is that nursing, which used to be a meritocratic profession, open to hard workers from less than wealthy backgrounds, becomes less so. Not good.
And just for the record, it appears that the financial sector is taking more and more from the middle class. This does not have to happen, but most people don't even seem to be aware of the problem.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.