Demand for Tech-savvy Workers Fuels Inequality

Rising income inequality more marked in advanced economies

New technology demands higher skills from workers

Policymakers urged to balance opportunities for all employees

In an interview with IMF Survey, David Autor, Professor of Economics at the Massachusetts Institute of Technology, argues that this trend is driven by rapidly developing technology, which has made highly educated workers more valuable within the workforce.

IMF Survey : Why does inequality matter?

Autor: For a long time economists were saying that equality did not matter that much. Many people say you need some inequality to provide incentives, and that if you do not have incentives, people will not work hard.

And how much is too much inequality? Who knows? I think that view has started to change over the last decade. United States Supreme Court Justice Potter Stewart once famously said [paraphrasing], “I don't know what pornography is, but I know it when I see it.” Many economists are now saying: we don’t know what too much inequality is, but it looks like we might have it.

I think a reason to be concerned—the reason I am concerned—is because too much inequality, although it creates great incentives for working hard and investing, can create a society that is ultimately more dynastic, meaning that the income of the household that a person is born into has a great effect on his or her life chances.

Thus, inequality affects not just material consumption but also, for example, access to good schools, because getting a child all the way through a good college requires almost two decades of investment, and not all households can do that. I do not have strong feelings about inequality of income as long as people are not destitute, but I worry very much that rising inequality of income will reduce economic mobility in the next generation.

IMF Survey: While economists have been concerned about inequality, the subject has also been in the popular imagination, and in the news, so this is obviously something that people are thinking about now. Can you quantify how much inequality has really risen?

Autor: Starting in the early 1980s, economists observed that the return on education, that is, inequality between college and noncollege workers, rose a lot. Over the last 25 years, the college/high school wage differential has roughly doubled, so that is one common measure of inequality. In the U.S., that corresponds to a rise in incomes of college workers, and a real decline...