The usual argument in tolerating income inequality is that workers do not have the skills to keep up with technical change and innovations. Professor Daron Acemoglu states that, “The recent consensus is that technical change favors more skilled workers, replaces tasks previously performed by the unskilled, and exacerbates inequality.” (Journal of Economic Literature, March 2002) According to him, it is a 20th century phenomenon. Therefore, the usually recommended solution is that workers must acquire those skills and education to obtain a greater share of productivity increase.

The push for the adoption of new technologies and innovations is a worthwhile endeavor in order to increase efficiency and profits in competitive markets, but it must also be workers-centered, creating employment growth and higher wages as a share of productivity increase, and thus decreasing income inequality. As Acemoglu argues further, that longer view suggests “technological advances may not have always increased the demand for skills. In fact, most early nineteenth-century innovations appear to have replaced skilled workers and expanded tasks performed by unskilled.”

The question is why a larger share of productivity increase is going to higher-paid corporate employees and profits and not to workers who are active participants in the growth of productivity? The claims made by corporations and other businesses to foster such a share of productivity distribution to higher paid employees and profits are mainly ad-hoc and self-serving. Professors Acemoglu and Simon Johnson in their recent book “Power and Progress” (2023) make a very cogent and detailed examination of the role of technology and productivity increases in improving the economic life of workers from industrial revolution to modern times. They argue that history shows the idea that technology results in an automatic increase in prosperity is pure conjecture. Whether it happens depends upon “economic, social and political choice.” Automation and globalization have led to higher labor productivity (output per man hour), total productivity (output of all inputs used in production) and profits, but not in a significant increase in shared prosperity.

Acemoglu and Johnson argue that technology has not created new tasks in which non-college-educated and semiskilled workers could be employed and earn higher wages. Hence, it has not reduced income inequality. The idea that automation is solely meant to reduce labor cost and increase earnings of higher-paid corporate workers, profits, shareholders’ income and employees with college education and technical skills has been supported by capitalists, many conservative economists and politicians. However, over a period of time, it has resulted in lower employment, lower wages and high income inequality of skilled workers at the median income distribution and other workers at the lower end of the income distribution. Between 2021 and 2022 shares of post-tax aggregate income have gone down from the lowest quintile to the third quintile, have remained the same for the fourth and increased for the highest quintile. (www.census.gov)

The countervailing power of more unionization will not be enough to offset this entrenched trend unless government provides incentives to redirect the technology and automation for the common prosperity of all workers in the country. From 1979 to 2022, policy choices — for example taxes, labor laws, deregulation and antitrust policy — have resulted directly in “a pronounced divergence between productivity and typical workers’ pay.” (Economic Policy Institute, October 2022)

In an opinion article in the Wall Street Journal (June 7, 2024), professor Alan Blinder discusses certain other strategies suggested by economists for improving redistribution of income. Yale economist Jacob Hacker labels them “predistribution” policies. These policies include increasing minimum wage, reducing anti-monopsony power (employers’ power to dictate wages), wage cheating in overtime work, supporting and strengthening unions’ policies, and encouraging CEOs to reduce the pay gap between executives and other workers.

Technology wonks and businesses that implement technologies have an obligation to their employees at all income levels and the society in general, including shareholders, if any, to share the prosperity of the business due to the adoption of new technologies and the resultant productivity increases. Technology adoption in businesses, especially artificial intelligence and robotics, must be instrumental in reducing income inequality and increasing growth. The redirection of income inequality also requires unconditional political support.

Vijay Mathur is former chair and professor in the Economics Department and now professor emeritus at Cleveland State University in Cleveland, Ohio. He resides in Ogden.