How does technology lead to income inequality in the economy?
Inequality refers to the measurement of imbalance or unequal distribution in a system, which may be social, economic, political, diversity, etc. In economics, it refers to how economic metrics are distributed among individuals in a group, among groups in a set of population, or among countries. Economists generally reckon about three broad areas of economic disparity. They are with respect to wealth, known as wealth inequality, income or income inequality and consumption or consumption inequality. Inequality of outcome from economic transactions occurs when some individuals gain much more than others from an economic transaction. Inequality of opportunity occurs when individuals are denied access to institutions or employment, which limits their ability to benefit from living in a market economy.
World Economic Forum say that;
Global inequality today is at a level last seen in the late nineteenth century – and it is continuing to rise. With it has come a surging sense of disenfranchisement that has fueled alienation and anger, and even bred nationalism and xenophobia. As people struggle to hold on to their shrinking share of the pie, their anxiety has created a political opening for opportunistic populists, shaking the world order in the process.
The gap between rich and poor nowadays is mind-boggling. Oxfam has observed that the world’s eight richest people now own as much wealth as the poorest 3.6 billion. As US Senator Bernie Sanders recently pointed out, the Walton family, which owns Walmart, now owns more wealth than the bottom 42% of the US population.
Growth in technology widens income gap
Growth in technology arguably renders joblessness at all skill levels. For unskilled workers, computers and machinery perform a lot of tasks these workers used to be do. In many jobs, such as packaging and manufacturing, machinery works even more effectively and efficiently. Hence, jobs involving repetitive tasks have largely been eliminated. Skilled workers are not immune to the nightmare of losing jobs. The rapid development in artificial intelligence may ultimately allow computers and robots to perform knowledge-based jobs.
The impact of increasing unemployment is stagnant or decreasing wages for most workers, as there is a low demand for but high supply of labor. A small portion of society, usually the owners of capital, controls an ever-increasing fraction of the economy. The income gap between workers who earn by their skills and owners who earn by investing in capital has widened.
Although both skilled and unskilled workers are adversely affected by the technological advance, it seems unskilled workers are subject to worse outcomes . This is because the labor market may still need skilled workers to use computers and operate the advanced machines. The rightward shift in the demand for skilled labor creates an increase in the relative wages of the skilled compared to the unskilled workers. Hence, the income gap among workers also has widened.
What are your thoughts on this aspect?
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