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Explaining inequality

Darvas, Zsolt, (2016), “Explaining inequality”, Bruegel, 13 December

Is technological progress behind growing income inequality? Zsolt Darvas argues increased automation is only part of the explanation.

There is a growing awareness that income inequality has increased in a number of developed countries. The lucky ones, with high levels of accumulated wealth, assets and top incomes, earn more and more, while those who are at the bottom of the income distribution increasingly see little opportunity for increased spending, buying a house of their own, or going to nice destinations for their holidays.

One possible explanation for these widening inequalities is technological progress, which may reward skilled workers more in comparison with unskilled workers. This idea sounds intuitive: those with higher skills, such as IT developers, are able to generate a great deal more output thanks to new technologies, and so they receive the proportionate remuneration . In contrast, those with lower skills, such as waiters, cannot generate much more value using new technologies and therefore do not receive extra compensation.

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