The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [64]
Figure 9. The capitalist pyramid.
The other potential explanation is the adoption of new technologies requiring skills that were initially in short supply. Companies that use computers and other new technologies need people with greater cognitive abilities—computers can do the easy, repetitive work, so the humans need to do the more challenging and creative work. This is great news in the sense that a lot of dull jobs have gone and work for many has become more interesting, but it has substantially reduced the demand for workers with only basic qualifications, and swaths of formerly well-paid shop floor jobs have vanished.
It is difficult to distinguish these two potential causes from each other empirically. Globalization increases the supply of unskilled labor relative to skilled labor by importing it embedded in goods produced in cheaper countries, or by enabling offshoring, or by the immigration of people who will compete for jobs. New technologies increase the demand for certain kinds of skilled labor relative to unskilled labor, for example (as discussed in the next chapter), increasing the need for college-education professionals to work in finance and diminishing the demand for bank tellers. In either case, the earnings of the skilled will increase relative to those of the unskilled. What’s more, the two phenomena—technical change and globalization—are closely related, as the extent of the growth in trade and cross-border investment we’ve experienced would not have been possible without the adoption of ICTs throughout the developed economies.
There has been a good deal of empirical research to try to distinguish the two effects, however. Alan Blinder showed that offshorable jobs in the United States had suffered an estimated 13 percent wage penalty as of 2004.31 Another study found a 1 percentage point increase in the low-wage import share is associated with a 2.8 percent decline in blue-collar wages.32
On balance, however, the technical change explanation emerges as the most important driver of increasing income inequality.33 This is not the popular perception. When a factory or call center closes in the United States and reopens in China or India, or when cheap clothing imports put domestic manufacturers out of business because they can’t compete, or when immigrant workers seem to bid down wages for low-skill jobs in the neighborhood, it seems pretty obvious that globalization is the culprit for the fact that low-income families have been faring poorly in recent decades. There is indeed evidence that globalization has played a part in the inequality trends described here. But even though no one is smashing computer terminals the way the Luddites in nineteenth-century England smashed the newfangled textile machinery that was destroying cottage industry, the evidence suggests that a larger part has been played by technological change.
It is not just that the earnings potential of people with degrees going into the professions has increased as new technologies spread in these sectors of the economy. The evidence also lies in the way the very highest levels of earnings have soared by comparison with those of everyone else. This is described in economics as the “superstar” effect, and it has appeared in many types of occupation.34 Consider a fairly rare talent such as being a world-class opera singer. Opera-goers want to be sure that when they pay for their ticket they are getting the best singers. The clearest signal of the best singer is the one that most people want to go and see.