The Future

Technology is for the rich

A new report from the IMF documents how technological advancement is chipping away at the share of income that goes to workers.

The Future

Spoils of production

The Future

Technology is for the rich

A new report from the IMF documents how technological advancement is chipping away at the share of income that goes to workers.

The World Economic Outlook, a report that the International Monetary Fund releases twice a year, says that the share of national income that's doled out to workers is shrinking — and technology is to blame.

Half of the decline in workers’ share of income between 1990 and 2015 over 160 countries can be blamed on technology such as automation and offshoring supported by IT, the IMF said. The gains from technology instead are accruing to the already rich.

That pattern looks set to become more extreme. Somewhere between a third to half of jobs are at risk of loss to automation over the next two decades, according to predictions from the likes of PwC (38 percent) and the University of Oxford (47 percent).

Omer Moav, a professor at the University of Warwick's department of economics, told The Outline in an email that wider research does point to technology as the “main source of rising inequality.” The World Bank warned last year that digital technologies were “replacing routine jobs” and possibly leading to “polarized labor markets,” when there's poorly skilled, poor paid jobs, and highly skilled, highly paid jobs, and nothing in between. That idea is shared by MIT professors Erik Brynjolfsson and Andrew McAfee but dates back at least to the economist John Maynard Keynes in the 1930s — though of course there's disagreement, with others arguing globalization is more to blame and technology will make new jobs.

The IMF's figures show that the share of national income paid to workers in “advanced economies” — its term for what's usually referred to as the developed world — has slid from about about 54 percent in the 1980s to below 40 percent in 2015, barely recovering since the crash of 2008. The picture is even worse in emerging markets and developing economies, with workers taking home 37 percent of national income.

Where's all that cash going? The productivity gains tend “to be concentrated in the upper ends of the income distribution,” the IMF researchers note in a blog post. That's how researchers say that the rich are getting richer, and the poor aren't.

How is this all tech’s fault? Automation and IT have eaten up some lower-skilled jobs (cashiers face automation, for example), but also led to a “hollowing out” of middle-skilled labor from IT support desks to taxi drivers, the IMF said, with the report saying technology had taken over routine tasks, leading work to become polarized around high-skilled and low-skilled roles that skill require the human touch — and pay.

Productivity gains tend “to be concentrated in the upper ends of the income distribution”

A prime example of that polarization is the so-called “gig economy,” which has been criticized for dodging labor protections by not treating workers as fully-fledged employees and paying a pittance while boasting billions in revenue (if not always profits). For example, traditional taxi drivers have faced competition and loss of wages as GPS and apps make it easier for companies like Uber to enter the market — but don't pay their drivers as well. For drivers, technology is reducing their profession from a middle-skill level, “good” job to a less-skilled, lower-paying job.

The problem is a tough one because there is wide agreement that technological advancement is still a good thing. “Clearly, one can try to block technological improvements, but that would be a terrible mistake,” Moav added. “Even if inequality increases, innovations improve the life of most citizens in the world.”

Nor does it mean that critics of globalization and its effects — including Donald Trump and his followers — are necessarily wrong that global integration is also worsening income inequality. Indeed, even the IMF, an organization whose acronym is essentially synonymous with globalization, pins some blame on the trend, especially in emerging markets, where it's had more of an impact than even technology.

But while Moav said globalization plays a “secondary role” in inequality to technology in developed countries, he said there's more to a happy, healthy life than income. “One should take into account more than just inequality: the welfare of individuals, in particular the middle class and the poor should, in my opinion be a major source of concern, and any attempt to limit trade would result in harming consumers, in particular the less wealthy,” he said.

So what can be done to stop technology from picking our pockets and lining those of its masters? The report suggests advanced economies need the right policies to help workers better cope with tech disruption, including education to upgrade their skills and help finding new roles, with support for job search and retraining.

"Well-designed policies can support reemployment and reduce the use (and cost) of income-support programs," the report noted — but it may not be enough to address "shocks" to the system such as mass unemployment and the lack of tax income that could entail. "By themselves, these policies are, however, unlikely to be sufficient, especially if shocks are concentrated in specific regions, sectors, or skill/age groups." In such cases, "longer term redistributive measures" might be required, though which is best depends on the situation, the report added.

Others have suggested more revolutionary ideas like universal basic income, which has seen limited trials in Finland, while Microsoft founder Bill Gates suggested AI and robots may need to face a tax equal to the human jobs they take up. “The only reasonable thing to do, and the extent of that is a matter of taste, is income redistribution, so the gains from technological progress are divided more equally,” Moav said.

But at the heart of any change, Moav said, must be “increasing welfare, in particular that of the less fortunate.” He added: “This isn't the same as trying to fight inequality, as that could simply mean finding ways to harm those who were successful.” In other words, taxing the rich, or their robots, may not be enough.

If education, retraining and better redistribution of income doesn't help address the balance, the IMF warned that social tension and lower productivity could be the result — and we're already seeing such symptoms, from Brexit to Trump. "As the global economy continues to struggle with subpar growth, an increasing recognition that the gains from growth often have not been broadly shared has strengthened a backlash against economic integration and bolstered support for inward-looking policies," the IMF said.


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