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for Social Policy Studies in Israel TAUB CENTER Causes and Consequences of Inequality Herbert M. Singer Conference Series taubcenter.org.il Rising Inequality in

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SLIDE 1

taubcenter.org.il

Causes and Consequences of Inequality

Herbert M. Singer Conference Series

TAUB CENTER

for Social Policy Studies in Israel בואט זכרמ

לארשיב תיתרבחה תוינידמה רקחל

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

David H. Autor MIT and NBER Taub Center for Social Policy Studies Jerusalem, 30 October 2013

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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SLIDE 4

Not One but Two Technological Revolutions: The Green Revolution and the Industrial Revolution

Johnston 2012

68% 22% 10% 40% 27% 33% 11% 37% 52% 2% 20% 78%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Agriculture Industry Services

1840 1900 1950 2010

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Automation of ‘Routine Tasks:’ Jacquard Loom (1801)

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Two Centuries of Productivity Growth in Computing: 2+ Trillion Fold Decline in Cost of Computing v. Labor

Nordhaus 2007

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Information Technology Accounted for ~40% of Business Investment as of 2010

0.00# 0.04# 0.08# 0.12# 0.16# 0.20# 0.24# 0.28# 0.32# 0.36# 0.40# 1959# 1962# 1965# 1968# 1971# 1974# 1977# 1980# 1983# 1986# 1989# 1992# 1995# 1998# 2001# 2004# 2007# 2010#

Informa4on#Processing#Equipment#+#SoBware#Share#of#All#Private#NonI Residen4al#Investment,#1959#I#2010#(Source:#BEA#NIPA)#

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Substitution, Complementarity: Tasks and Technology

Task Description Example Occupations Potential Impact of Computerization Routine Tasks

  • ‘Rules-based’
  • Repetitive
  • Procedural
  • Bookkeepers
  • Assembly line

workers

  • Direct Substitution

Abstract Tasks • Abstract

problem-solving

  • Mental

flexibility

  • Scientists
  • Attorneys
  • Managers
  • Doctors
  • Strong

Complementarity

Manual Tasks

  • Environmental

Adaptability

  • Interpersonal

Adaptability

  • Truck drivers
  • Security guards
  • Flight attendants
  • Home health aides
  • Waiters
  • Cleaners
  • Limited

Complementarity

  • r Substitution
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SLIDE 9

U.S. Job Task Input by Education Group in 1980

HS Dropouts HS Dropouts HS Dropouts HS Graduates HS Graduates HS Graduates Some College Some College Some College College Grads College Grads College Grads

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Manual Tasks Abstract Tasks Routine Tasks

Autor, Levy and Murnane, 2003

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SLIDE 10

Employment Polarization, 1979 – 2010 Percent Growth in Employment by Occupation

  • .2

.2 .4 .6

Personal Care Food/Cleaning Service Protective Service Operators/Laborers Production Office/Admin Sales Technicians Professionals Managers

Percent Change in Employment by Occupation, 1979-2010

1979-1989 1989-1999 1999-2007 2007-2010

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Changes in Employment Share by Job Skill Tercile, 1993-2006 Comparison of U.S. and European Union Countries

  • 20
  • 10

10 20 USA EU Average Portugal Ireland Finland Norway Netherlands Greece UK Sweden Germany Spain Belgium Denmark Luxembourg France Austria Italy

Source: Goos, Salomons and Manning (2009)

Lower Third Middle Third Upper Third

US v. EU Averages EU Nations Ordered by Growth in High Skill Occupation Share

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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Chinese Imports Surge Following its 2001 WTO Accession — U.S. Manufacturing Employment Declines Simultaneously

.08 .1 .12 .14 Manufacturing emp/pop .01 .02 .03 .04 .05 Import penetration 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Year China import penetration ratio Manufacturing employment/Population

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⇿

Many High Income Countries Experience a “China Shock” in the Last Two Decades

Australia, Denmark, Finland, Germany, Japan, New Zealand, Spain, and Switzerland

United States

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Defining Local Labor Markets: “Commuting Zones”

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Impact of China Exposure on U.S. Manufacturing Employment per Adult: Commuting Zone Level Estimates

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Imports on U.S. Manufacturing Employment per Capita for a $1,000/Worker Increase in Exposure

L0.9&%& L0.7&%&

!1.0%%% !0.8%%% !0.6%%% !0.4%%% !0.2%%% 0.0% 0.2% 1990L2000& 2000L2007&

Percentage&Points&

Imports&From&China&and&Change&of&Manufacturing&Employment&in& CommuRng&Zones,&1970L2007&& &

Effect&of&an&$1000&Per&Worker&Increase&in&Imports&from&China&during&1990=2007&on&the& Change&in&Manufacturing&Employment&as&a&Percentage&of&the&Working&age&PopulaCon&

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Negative Impacts Begin with China’s Rise in the 1990s

0.4&%& L0.1&%& L0.9&%& L0.7&%&

L1.00&%& L0.80&%& L0.60&%& L0.40&%& L0.20&%& 0.00&%& 0.20&%& 0.40&%& 0.60&%&

1970L1980& 1980L1990& 1990L2000& 2000L2007&

Percentage&Points&

Imports&From&China&and&Change&of&Manufacturing&Employment&in& CommuRng&Zones,&1970L2007&& &

Effect&of&an&$1000&Per&Worker&Increase&in&Imports&from&China&during&1990=2007&on&the& Change&in&Manufacturing&Employment&as&a&Percentage&of&the&Working&age&PopulaCon&

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Impacts on Manufacturing Emp, Non-Manufacturing Emp, Unemployment, Non-Participation

L0.6&%& L0.6&%& L0.6&%& L0.2&%& 0.2&%& L0.5&%& 0.2&%& 0.1&%& 0.3&%& L0.8&%& L0.6&%& L0.4&%& L0.2&%& 0.0& 0.2& 0.4& 0.6& 0.8& All&EducaRon&Levels& College&EducaRon& No&College&EducaRon&

Imports&from&China&and&Employment&Status&of&Working&Age&PopulaRon& within&CommuRng&Zones&(1990L2007)&&

&

Effect&of&an&$1000&Per&Worker&Increase&in&Imports&from&China&during&1990=2007&on&Share&

  • f&PopulaCon&in&Employment&Categories&&

Manufacturing& NonLManufacturing& Unemployment& Not&in&Labor&Force&

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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SLIDE 21

Composition Adjusted College/High-School Weekly Wage Ratio, 1963-2008

!

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Composition Adjusted College/High-School Relative Labor Supply, 1963-2008

!

) *$% +& ,' - . % +/' 01) ' 2. 3 . ' 4 *% ' & . % 5" 5#6' 7& . % 6' 89: ; < ( ==>? ' @ . A*% ' 6$BBC 7' " 6' +. C +$C . 3 & 2' $6" 5#' . C C ' B& % 6*56' . #& 6' 8: < : D' E /*

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Predicted and Actual College/High-School Wage Gap, 1963 - 2008

!

*+% & , ' -!. /& , 0!12*!3/4 /!5 +& !' /& 6# 6$7!8' /& 7!( ) 9: ;<==>? !@ +$!A' ' BC 8!A /$' 7!5 +& !5 % C C ;4 # D ' E !5 % C C ;8' /& !A+& B' & 7!/& ' !& ' $& ' 77' 3!#

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Gains in Post-Secondary Education over 30 Years: Fraction of Adults with ‘Tertiary’ Education in 2009

Source: OECD 2011

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Educational Attainment by Sex: Supply of Young College v. High School Workers, 1963-2008

!

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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SLIDE 27

Changes in Real Hourly Wage Levels 1979-2010, by Education and Sex (Ages 25 – 39)

Source: Autor and Wasserman, 2013

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D Real Earnings and D Emp/Pop, 1979 – 2008: U.S. Males by Education and Race (Ages 25-39)

Source: Autor and Wasserman, 2013

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Top 1% Income Share: English-Speaking Countries

Atkinson, Piketty, Saez 2011

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Top 1% Income Share: Nordic Countries and Southern Europe

Atkinson, Piketty, Saez 2011

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Top 1% Income Share: Middle Europe and Japan

Atkinson, Piketty, Saez 2011

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Top 1% Income Share: ‘Developing Countries’

Atkinson, Piketty, Saez 2011

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Analogy by Dutch Economist Jan Pen (1921 – 2010)

  • Imagine people’s height being proportional to their income, so

that someone with an average income is of average height.

  • Now imagine that the entire adult population of America is

walking past you in a single hour, in ascending order of income.

  • The first passers-by, the owners of loss-making businesses, are

invisible: their heads are below ground.

  • Then come the jobless and the working poor, who are midgets.
  • After half an hour the strollers are still only waist-high, since

America’s median income is only half the mean.

  • It takes nearly 45 minutes before normal-sized people appear.
  • But then, in the final minutes, giants thunder by.
  • With six minutes to go they are 12 feet tall.
  • When the 400 highest earners walk by, right at the end, each is

more than two miles tall.

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SLIDE 34

Cross-Sectional Income Inequality and Intergenerational Earnings Elasticity

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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D Female Marriage Rates vs. D Male Earnings, Ages 25 – 39, 1979-2008

Source: Autor and Wasserman, 2013

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D Real Earnings and D Emp/Pop, 1979 – 2008: U.S. Males by Education and Race (Ages 25-39)

Source: Autor and Wasserman, 2013

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Percentage of Births to Unmarried Women by Race, 1980 - 2009

Source: Autor and Wasserman, 2013

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Disparities in Weekly Time Spent in Literacy Activities by Age and Household Income Quintile101

Source: Meredith Phillips, 2013

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Per Capita Enrichment Expenditures on Children ($2008) Top versus Bottom Quartile of Households

Source: Duncan and Murnane, 2011

3,536 5,650 6,975 8,872 835 1,264 1,173 1,315 $0 $2,500 $5,000 $7,500 $10,000 1972-3 1983-4 1994-5 2005-6

Top income quintile Bottom income quintile

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Gap in years of Completed Schooling: Students with family Income in the Top vs. Bottom quintiles (by Year of Birth-14)

Source: Duncan and Murnane, 2011

1 2 3 4 1968 1972 1976 1980 1984 1988 1992 1996 Gap in years of completed schooling

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Fraction of Students Completing College by Income and Quartile and Birth Year

Author’s .05 .14 .17 .36 .09 .21 .32 .54 0.00 0.25 0.50 0.75 Lowest Quartile 2nd Quartile 3rd Quartile Top Quartile Fraction Completing College 1961-1964 birth cohorts 1979-1982 birth cohorts

Source: Bailey and Dynarski, 2011

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10 20 30 40 50 slope .1 .2 .3 .4 .5 CENSUS 2000: Share Families w/ Kids Single Mom

Commuting Zone Level Correlation

Fraction of Kids w/Single Mom and Income Immobility

Commuting Zones with Higher Fraction of Mother- Headed HH’s Have Lower Mobility

Source: Chetty, Hendren, Kline, and Saez, 2013

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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High Returns to Education ⇿ Low Mobility

Source: Corak, 2013

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High Returns to Education ⇿ Low Mobility

Source: Corak, 2013

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Gains in Post-Secondary Education over 30 Years: Fraction of Adults with ‘Tertiary’ Education in 2009

Source: OECD 2011

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SLIDE 48

Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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Changes in Top Marginal Tax Rates and Changes in Top Income Shares, 1960/64 – 2005/09

Source: Piketty, Saez and Stantcheva, forthcoming

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SLIDE 50

Changes in Top Marginal Rates and GDP per Capita Growth Rates, 1960/64 – 2006/10

Source: Piketty, Saez and Stantcheva, forthcoming

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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Real U.S. Minimum Wage and 10/50 Inequality, 1974 – 2011

Source: Autor, Manning and Smith, 2013

  • .8
  • .7
  • .6
  • .5
  • .4
  • .3
  • .2

Log(p10)-log(p50) 1.6 1.7 1.8 1.9 2 2.1 2.2 1974 1980 1985 1990 1995 2000 2005 2010 Real value of average state/federal mins Real value of fed. min. log(p10)-log(p50), female log(p10)-log(p50), male Note: Annual data on state and federal minimum wages and log percentiles. Minimum wages are in 2011 dollars.

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No Compelling Evidence that Modest Minimum Wages Reduce Employment

Decades of study and debate

  • Remarkably little evidence of adverse employment impacts
  • f minimum wages
  • Yet minimum wages do reduce inequality
  • Polarization of occupations provides greater opportunities

for labor standards to “work” effectively

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SLIDE 54

Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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Minorities, Youth and Low Education Adults Suffer Most in a Recession

Source: Hoynes, Miller and Schaller 2012

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Minorities, Youth and Low Education Adults Suffer Most in a Recession

Source: Hoynes, Miller and Schaller 2012

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SLIDE 57

Minorities, Youth and Low Education Adults Suffer Most in a Recession

Source: OECD 2013

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Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses

1.

Inequality – Causes

  • Technological revolutions
  • International competition
  • The ‘education race’

2.

Inequality – Concerns

  • Inequality and economic mobility
  • Household structure and investments in children

3.

Inequality – Policy responses

  • Education
  • Taxation
  • Labor standards
  • Macroeconomic policies

4.

Conclusions

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SLIDE 59

Conclusions

  • Many forces contributing to rising inequality in

industrialized nations

  • Countries can have too little inequality – and can also

probably have too much

  • Policy options available that push back against

inequality without imposing large economic costs

  • Short and medium run policies: Taxation, labor

standards, macro policy

  • Long run responses: Investment in education,

infrastructure, good governance

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SLIDE 60

taubcenter.org.il

Causes and Consequences of Inequality

Herbert M. Singer Conference Series

TAUB CENTER

for Social Policy Studies in Israel בואט זכרמ

לארשיב תיתרבחה תוינידמה רקחל