Technology and Globalisation is destined to drive up Inequality

By Shania D’Souza and Kushi Naidu | Edited by Drishti Rana and Kripa Jalan

FOR

Globalization and Technology go hand in hand when it comes to inequality.  Let’s delve into this, by breaking it down into 2 areas – Rising inequality and Unequal Skills. 

So, why is inequality increasing?

One of the problems of increasing inequality is that some economic agents cannot fully exploit the opportunities created by technological progress and globalization, which leads to suboptimal use of capital and labor. This, in turn, limits economic growth. There are negative effects of globalization on blue-collar workers’ wages, their jobs, and bargaining power. However, globalization is not the only factor affecting blue-collar workers’ wages, as technological progress can be skill-biased. Skill biased technological change (SBTC) represents a shift in production technology that favors more skilled and educated people and increases their relative productivity and wages, thus leading to higher inequality. This same principle is applied to trade, i.e Globalization can increase wage inequality in a relatively rich country by increasing the imports of manufactured goods using predominantly low-skilled labor from developing countries. Conversely, it opens more opportunities for exports in high-tech firms that use more high-skilled labor. These two forces can widen the wage gap between high-skilled and low-skilled workers. High-tech industries would expand as they serviced export markets. Older manufacturing industries, such as textiles, would disappear in the face of imports. In other words, technology often does the routine tasks for us, thus allowing highly-skilled people to focus more on non-routine, abstract tasks that really set them apart. The routine tasks are often the bread and butter of the low-skilled worker however, so the new technology harms their prospects.

Technological change can also potentially increase wage inequality. Fewer secretaries, assembly-line workers are needed if computers and automation replace them in the production process. Conversely, newer technology can increase the demand for the services of, say, engineers who can service those machines. However, a rapid rise in the relative wage of skilled workers, implies that technological change has been skill-biased (Acemoglu, 1998; Berman et al., 1998). The development of information and communication technologies enabled routine tasks to be substituted by technology. The SBTC increased the demand for highly educated workers working on abstract tasks, reduced demand for middle-educated workers working on routine tasks. (Autor et al., 2003). Such a shift in demand on the labor market led to higher inequality in the upper-tail of the distribution by increasing incomes of highly educated workers and decreasing incomes of middle-educated workers, mostly high school graduates. To add to this, the most prominent effect of technology on inequality is through the increased premium it places on skills. Modern technology substitutes for many of the jobs and tasks traditionally performed by unskilled workers, while acting as a complement to skilled workers. By substituting for unskilled workers, technology has not only increased the premium on skills, but increased the role of capital in production. Historically the share of income that accrues to workers relative to capital owners has declined across most countries and industries as technology has made capital goods ever cheaper (Karabarbounis & Neiman, 2013). This adds to inequality, as capital ownership is especially unequal and generates large investment income for many of the same individuals already earning high wages (Atkinson & Lakner, 2013). Production activities that require low skill levels are outsourced to countries with lower wages, while the domestic labor market demands more highly skilled workers. Technological progress and FDI increase inequality through higher returns on capital and higher incomes of skilled workers, but they do not limit economic opportunities. Real incomes of all income groups have increased, including the poorest ones, but the highest increase is present in the richest group leading to higher inequality.

For example, The empirical evidence from the US and Western Europe has also shown that SBTC leads to a change in employment structure or job polarization. Shares of high-paid professionals and managers as well as low-paid service workers are increasing, while on the other hand shares of manufacturing and office workers are decreasing 

Technology has often led to the creation of strongly monopolistic markets for new goods and services. This is especially apparent in the digital economy, where behemoths like Google and Apple dominate. Globalization has expanded the scale of these winner-takes-all markets, enabling vast salaries and profits to be shared among a narrow set of employees and shareholders. The thing is, those with low skills have been on the receiving end of pretty much every shift in the labor market over the past decade. For instance, MIT research found that the recent economic recovery generally passed low-skilled workers by. Since the financial crisis, 300,000 or so jobs were created in December alone, with income rising at a similar pace. That is not true for low-skilled work however, as incomes for this group have barely moved for 50 years! What’s more, when jobs return after a recession or other economic shock, they are nearly always requiring higher skills than before the shock. Far from being a destroyer of jobs therefore, what technology does seem to do is help inequality between those with skills and those without.

As global poverty continues to decline, another issue emerges. According to the World Economic Forum, rising income inequality and the polarization of societies pose a risk to the global economy, and may lead to increased polarization and lack of political stability. For example, The disparity between the rich and everyone else is larger than ever in the United States, and few places is this skewed wealth distribution more visible than in and around Silicon Valley. The chasm between tech multi-billionaires and the rest of the population in Northern California — where an estimated 31 percent of jobs pay $16 per hour or less and the median income in the U.S. today is about the same as it was in 1995, has led to the conclusion that the tech sector is greatly contributing to increased inequality.

Some may argue that platforms like Uber are generating new income opportunities, but a recent court ruling where Uber was fined $20 million for misleading drivers with inflated wage statistics tells a different story. Sharing has little to do with caring in the sharing economy.

Advancements in gene editing and biohacking, human augmentations and longevity are posed to enhance our lives, but may also lead to a new class divide, where an elite class emerges through both physical and mental upgrades.

Thus, we see how globalization and technology contribute to the rise of inequality and how important it is to curb it in order to establish an egalitarian society.

AGAINST:

Global inequality refers to inequality between people across countries. The nations were prone to such inequality in the past decade owing to numerous uncertainties such as the Global Financial crisis, COVID-19 pandemic, fluctuations in China’s real estate market and many more. However, the rapid spread of technological advancements has enabled ideas, money, people, materials to flow between national borders faster and more frequently than ever. What nurtures this boost is globalization. It is more often described than defined. Economic globalization implies increasing global inter-linkages of the markets in goods, services, capital and marketing. Today, 92% of the world’s currency is digitized. This is an example of how the digital world is affecting humankind. Technological advancements help and motivate countries to step further than the original breakthrough, when this is coupled with competition it creates an environment highly conducive to advancements. For example, the smartphone industry. When a country produces a particular item and as a consequence of globalization, exports the products, the country becomes open to markets yielding profits. This way, globalization has opened doors for the expansion of opportunities for nations and benefited workers in rich and poor countries alike.

Positive benefits have been recorded for consumers with an increase in the range of choices, improved services and creation of new jobs. Technological upgradation has introduced us to a new world of e-commerce, wherein benefits for the developing countries are immense. To reap the benefits, developing nations need to improve institutional capacity, enhancement of technology, and increase competitiveness through investment. Such measures encourage changes in the system and promote global participation.

Through the harsh times of the pandemic, it was the technological advancements that helped in facilitating education to the people across the globe and as a result of globalization, countries were able to dismantle trade barriers and lend help where needed. 

Apart from the economic benefits, globalization promotes cultural diversity, people have come closer and together built a productive community. The process of globalization has acted as liberalization of a process of removing authoritatively imposed controls on the movement of resources. The backbone of such change includes deregulation, economic inclusion and declining costs of transport and communication, which have helped in providing equal opportunities and thereby reducing inequalities. Technological advancements have allowed students in developing countries to access top-notch university courses and educate themselves at the same level as students in developed nations. This progress has set a milestone from not having access to any book to all books in the world. As more and more developing nations apply for membership in the World Trade Organization (WTO), World Bank, International Monetary Fund, they hold the potential to influence the policies that shape this process to benefit their development. Most countries have tremendous opportunities for exporting their products in the international market.  Technology and Globalization, driven in the correct direction, hold the capacity to drive up equality, living standards and prosperity.

If this revolution has the potential to ring in a new era of social progress and strengthen societies, we need to improve access to technology; educate everyone so they can fully benefit from the opportunities it opens up, and avoid the real danger of creating a digital underclass. Largely, this reorientation has changed the essence of human contact to earth, distances have shrunk and have given rise to a plethora of opportunities.

References:

Binish, Q. (2018, November 19). Interface between Globalization and Technology. The Research Publication. https://www.trp.org.in/issues/interface-between-globalization-and-technology

Chandy, K. D. A. L. (2016, October 5). Are technology and globalization destined to drive up inequality? Brookings. https://www.brookings.edu/research/are-technology-and-globalization-destined-to-drive-up-inequality/

Christoffer, H. (2017, March 29). Is technology contributing to increased inequality? TechCrunch. https://techcrunch.com/2017/03/29/is-technology-contributing-to-increased-inequality/

Diana, S. (2018, June 15). Is a globalized world a less equal world? American Economic Association. https://www.aeaweb.org/research/globalization-income-inequality-trade-policy

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