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The Internet is to blame for economic inequality
TO THE question of who created today's economic inequality, there is now a new and intriguing answer: the Internet. It has apparently turned millions among us into workaholics, lugging around our laptops, ready at a moment's notice to tackle the latest digital chore. The trouble is that all this extra work - and the income it generates - is heavily skewed towards the economy's upper strata. Hence, the leap in inequality.
This change in lifestyles is something most of us have witnessed. The barriers between work and family are collapsing before the relentless demands of algorithms. Work has become a constant companion and an indestructible nag.
Whether this is good for the national psyche is an open question worthy of scholarly study. What's less debatable is that this digital imperative is more than a curiosity. It's not just a reflection of growing economic inequality, it's also a contributor, says a new study by economists Edward E Leamer and J Rodrigo Fuentes. (The study has been published as a working paper by the National Bureau of Economic Research.)
Leamer and Fuentes, who collaborated on the study at UCLA, noticed that higher-income employees were spending more time working, whether "at the office", home or somewhere else. The biggest increases were largely confined to workers with bachelor's or advanced degrees (professional or doctoral degrees).
Here are some numbers: Between 1980 and 2016, the annual average number of working hours for employees with advanced degrees rose from 1,930 to 2,109, an increase of 9 per cent. The gain for those with just bachelor's degrees was 7 per cent, from 1,872 hours (1980) to 2,009 hours (2016). For other workers - ranked by education - the changes in hours were negligible. The gain in hours for workers with a high school diploma was less than one per cent.
This factor - working hours - Leamer and Fuentes call "effort". They say it has been under-recognised in explaining inequality. From 1980 to 2016, the average increase in wages for those with advanced degrees was 41 per cent, from US$67,349 to US$94,967. The gain for college graduates was 17 per cent, from US$56,262 to US$65,865. For everyone else, inflation-adjusted incomes over the period were negative. Prices increased faster than wages. The loss for high school graduates was 12 per cent.
Hours worked - or not - compounded other effects on inequality, say Leamer and Fuentes. Take the erosion of manufacturing jobs. Since its post-World War II peak of 32 per cent in 1953, the manufacturing sector's share of total jobs has dropped steadily. It is now about 8 per cent, as automation has eliminated traditional factory jobs.
Many of these jobs once commanded high wages - stemming from workers' role in sustaining expensive production systems. Globalisation and outsourcing amplified the adverse impact on factory workers. As these jobs vanished, workers migrated into lower-wage jobs in retail, health care, and leisure and hospitality.
Meanwhile, the opposite was happening at the top of the economic spectrum. Incomes were rising. Workaholics were multiplying. Write Leamer and Fuentes:
"The innovations in personal computing and Internet-based communications have allowed individual workers the freedom to choose weekly work hours well in excess of the usual 40 . … The benefits … accrue primarily to the few who can use the new technology to create value during the long hours. This requires both natural talent and high levels of education."
To repeat: The opportunities were strongest among a minority of workers who could take advantage of digital technologies. About 75 per cent of Americans use the Internet, report Leamer and Fuentes. But only about 16 per cent of full-time workers over 25 have advanced degrees, while 26 per cent have bachelor's degrees, according to the Bureau of Labor Statistics.
There are many studies on inequality - what caused it, what the consequences are or might be (political as well as economic), and what should or could be done about it. The Leamer-Fuentes study adds to our understanding by illuminating how these trends are already changing the way labour markets function.
The present trends, if continued, do not bode well for the future. If the labour force splits between well-paid workaholics and everyone else, there is bound to be a backlash - there already is - among people who feel they're working hard but can't find the results in their pay cheques.
But remember: There is a conflict between the flexibility and freedom that we want and the greater inequality that we don't. WP