Sunday, May 18, 2014

Technology, Employment And The Rise Of Inequality

Thomas Piketty's explanation for inequality is based upon a review of historical data.  One of the common criticisms of Piketty's thesis is that the future may differ from the past.  Larry Summers, for example, argues that technology and the rise of robotics has already contributed to a rise in unemployment and that this trend will only worsen as technology transforms the way output is produced.  Summers is correct.  Technology has not only played a larger role in the production process, but it has also had a huge impact on where the work will be located.  The Internet has made it possible for software development, and a host of other highly skilled jobs, to be located in low wage countries.  For example, India has become a center for managing the information technology in US corporate data centers.  Container technology has made it easier to ship products made in low wage countries to high wage countries.  That trend is likely to continue but it does not really alter Piketty's thesis.  Piketty makes the point in his book that, at the very extreme, all of the work could be done by robots.  That only supports his central thesis of rising inequality because the owners of capital would receive all of the income and labor's share would drop to zero.  A future determined by the increasing use of technology in manufacturing and in highly skilled employment will only lead to a rise in inequality.  We would also be faced with the problem of maintaining a society in which wages did not provide a livelihood for most our citizens.

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