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Technology and Inequality: reasons for concern, reasons for optimism Mark Stabile Stone Chaired Professor of Wealth Inequality Professor of Economics INSEAD Alumni Forum Europe 2017 Digital Transformation: A force for a better world? Outline

  1. Technology and Inequality: reasons for concern, reasons for optimism Mark Stabile Stone Chaired Professor of Wealth Inequality Professor of Economics INSEAD Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  2. Outline • What’s the inequality problem? • What’s worked in the past and what’s not working now? • What’s going to happen next? • How do we think about inequality and digital transformation? Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  3. The Global Financial Crisis & Recovery Real GDP Growth Rates 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -2 -4 -6 Japan United Kingdom United States EU-27 -8 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  4. Recovery has not been equal … United States: Distribution of Average Income Growth during Periods of Expansions - Bottom 99: Top 1 [1949-2013] 120% 100% 80% Percent 60% 40% 20% 0% 1949-53 1954-57 1958-60 1961-69 1970-73 1975-79 1982-90 1991-00 2001-07 2009-12 2009-13 Source: Authors calculations based on data from The World Wealth and Income database Bottom 99 Top 1 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  5. Top 1% Income Shares in the US with and without Capital Gains [1913-2013] 0,3 0,25 0,2 Percent 0,15 0,1 0,05 0 1913 1916 1919 1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Top 1% Income Share-Capital Gains Excluded Top 1% Income Share-Capital Gains Included Source: Author’s calculations using World Wealth and Income Database Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  6. UK-Top 1% Income Share [1951-2013] 18% UK-Top 1% income share-married couples & single adults 16% Top 1% Income Share, Percent 14% UK-Top 1% income share-adults 12% 10% 8% 6% 4% 2% 0% 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Data from OECD Stat and The World Wealth and Income Database Author’s calculations from WWI database Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  7. Digital Transformation: A force for a better world? Alumni Forum Europe 2017 Top� 1%� Income� Share,� Percent� 10% 15% 20% 25% 0% 5% 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 France- Top� 1937 Data� 1939 1941 from� 1943 1945 1947 OECD� 1%� 1949 1951 Income� France- Top� Stat� 1953 1955 and� 1957 The� Share� 1959 1961 1%� World� 1963 income� and� 1965 1967 Wealth� Gini� 1969 share 1971 [1915-2011] 1973 and� 1975 Income� 1977 1979 1981 Database 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

  8. Why the rise? • Combination of market forces and policy choices – Increased globalization – A decline in top marginal tax rates – Changes in bargaining and political power – Skill bias technological change and the return to labor Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  9. Connecting inequality and social mobility • Does the “American Dream” still exist? Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  10. Mobility in the OECD Intergenerational income elasticities among men Larger number means less mobility Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  11. The Fading American Dream Chetty et al (2016) Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  12. Corak, 2011 Larger number means less mobility Corak, 2013 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  13. Recent responses to inequality coupled with stagnant growth in the middle • We are seeing movement away from traditional public policy responses toward protest oriented responses. • People feel insecure (economically and physically) and are reacting to that insecurity. • Occupy movement • Brexit • Trump • The growth of far right political parties • What’s next? Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  14. Is Business A Force for Good? Change in real income between 1988 and 2005 (in 2005 international dollars) Rise of the 1% The very Decline of poor the middle class in rich countries India China … catch-up Source: Branko Milanovic Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  15. Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  16. Technology and Inequality • What’s the connection between technology and inequality? • Skill-biased technological change explanation from above. • Does well at explaining some periods. Not others. Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  17. Technological changes over the past century Source: Card and Dinardo, 2002 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  18. “The race between education and technology” Source: Acemoglu and Autor, 2012 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  19. Up to 1.2 billion workers automated? Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  20. Alumni Forum Europe 2017 Digital Transformation: A force for a better world? McKinsey, 2016

  21. “ We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment .” Keynes, 1930 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  22. Employment growth is greater when there are more job titles … Acemoglu and Restrepo, 2016 Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  23. But how does this effect inequality? • If new tasks are more complex, they will favor high skilled workers, leaving others behind. • If, over time, these skills become more available to all workers, there will then be catch up (e.g. computers). • But … “over time” is a key part of the analysis. • The same people that are currently losing work are not (for the most part) the ones that will get the new jobs. Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  24. So what do we do? • Innovation and transformation will, of course, continue. • Some will (hopefully) even help instead of hurt inequality. • Need to couple this with interventions that will preserve innovation while managing inequality and labor market disruption. – Basic income – Changes in education – Redistribution (both to curb inequality and to fund the above) Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

  25. Thank you. Mark Stabile Stone Chaired Professor in Wealth Inequality and Professor of Economics mark.stabile@insead.edu Alumni Forum Europe 2017 Digital Transformation: A force for a better world?

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