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Causes and Consequences of Inequality Herbert M. Singer Conference Series

TAUB CENTER for Social Policy Studies in Israel

מרכז טאוב לחקר המדיניות החברתית בישראל

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

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

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

U.S. Employment Shares in Agriculture, Industry and Services, 1840 - 2010

1840 1900 1950 2010

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

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

Nordhaus 2007

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#NonIResiden4al#Investment,#1959#I#2010#(Source:#BEA#NIPA)#

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

or Substitution

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

HS

Dro

po

uts

HS

Dro

po

uts

HS

Dro

po

uts

HS

Gra

du

ate

s

HS

Gra

du

ate

s

HS

Gra

du

ate

s

So

me C

olle

ge

So

me C

olle

ge

So

me

Co

lleg

e

Co

lleg

e G

rad

s

Co

lleg

e G

rad

s

Co

lleg

e G

rad

s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manual Tasks Abstract Tasks Routine Tasks

U.S. Task Input by Education Group, 1980 Averages

Autor, Levy and Murnane, 2003

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

-.2

0.2

.4.6

Perso

nal C

are

Food/C

leaning Service

Prote

ctive

Service

Operato

rs/Laborers

Produ

ction

Offic

e/Adm

in

Sales

Technicians

Professio

nals

Mana

gers

Percent Change in Employment by Occupation, 1979-2010

1979-1989 1989-1999

1999-2007 2007-2010

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

-20

-10

010

20

USA

EU Ave

rage

Portug

al

Irelan

d

Finlan

d

Norway

Nether

lands

Greec

eUK

Sweden

Germ

any

Spain

Belgium

Denm

ark

Luxe

mbo

urg

Franc

e

Austri

aIta

ly

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








4. Conclusions

Chinese Imports Surge Following its 2001 WTO Accession —

U.S. Manufacturing Employment Declines Simultaneously

.08

.1.1

2.1

4M

anuf

actu

ring

em

p/po

p

0.0

1.0

2.0

3.0

4.0

5Im

port

pen

etra

tion

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007Year

China import penetration ratio

Manufacturing employment/Population

⇿

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

Defining Local Labor Markets: “Commuting Zones”

Impact of China Exposure on U.S. Manufacturing

Employment per Adult: Commuting Zone Level Estimates

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

Impacts on Manufacturing Employment

L0.9&%&

L0.7&%&

!1.0%%%

!0.8%%%

!0.6%%%

!0.4%%%

!0.2%%%

0.0%

0.2%1990L2000& 2000L2007&

Percen

tage&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&

Negative Impacts Begin with China’s Rise in the 1990s Impacts on Manufacturing Employment

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&

Percen

tage&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&

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

Impacts on Manuf Emp, Non-Manuf Emp, Unemp, NILF

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&

of&PopulaCon&in&Employment&Categories&&

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








4. Conclusions

Composition Adjusted College/High-School Weekly

Wage Ratio, 1963-2008 ! "#$%&'( '

!) *$%+&,'- . %+/ '01) '2. 3. '4*%'&. %5"5#6'7&. %6'( 89: ;<==>?'@*#'A&&BC7'A . #&6'4*%'4$CC;3"D &E'4$CC;7&. %'A*%B&%6'. %&'%&#%&66&2'"5'

&. +/ ' 7&. %' *5' 4*$%'&2$+. 3"*5' 2$D D "&6' F/ "#/ ' 6+/ **C' 2%*G*$3E' 6*D &' +*CC&#&E' +*CC&#&' #%. 2$. 3&E' #%&. 3&%' 3/ . 5' +*CC&#&HE' . '

I $. %3"+' "5'&JG&%"&5+&E' "53&%. +3"*56'*4'3/&'&2$+. 3"*5'2$D D "&6' . 52'&JG&%"&5+&' I $. %3"+E' . 52'3A*'%. +&'+. 3&#*%"&6'FKC. +BE'

5*5;A / "3&' *3/&%H?' L/&' +*D G*6"3"*5;. 2M$63&2' D &. 5' C*#' A . #&' "6' 3/&' G%&2"+3&2' C*#' A . #&' &N. C$. 3&2' 4*%' A / "3&6' . 3' 3/&'

%&C&N. 53' &JG&%"&5+&' C&N&C' FOE' ( OE' <OE' : OE' PO' 7&. %6H' . 52' %&C&N. 53' &2$+. 3"*5' C&N&C' F/ "#/ ' 6+/ **C' 2%*G*$3E' / "#/ ' 6+/ **C'

#%. 2$. 3&E'6*D &'+*CC&#&E'+*CC&#&'#%. 2$. 3&E'#%&. 3&%'3/ . 5'+*CC&#&H?'L/&'D &. 5'C*#'A . #&'4*%'+*CC&#&'. 52'/ "#/ '6+/ **C'"6'3/&'

A&"#/ 3&2' . N&%. #&' *4' 3/&' %&C&N. 53' +*D G*6"3"*5' . 2M$63&2' +&CC6' $6"5#' . ' 4"J&2' 6&3' *4' A&"#/ 36' &I $. C' 3*' 3/&' . N&%. #&'

&D GC*7D &53'6/ . %&'*4'&. +/ '#%*$G?'L/&'%. 3"*'*4'D &. 5'C*#'A . #&6'4*%'+*CC&#&' . 52'/ "#/ '6+/ **C'#%. 2$. 3&6'4*%'&. +/ '7&. %'"6'

GC*33&2?') &&'Q. 3. 'RGG&52"J '4*%'D *%&'2&3. "C6'*5'3%&. 3D &53'*4'- . %+/ '01) '2. 3. ?'

!

Composition Adjusted College/High-School

Relative Labor Supply, 1963-2008 !

! "#$%&'( '

!) *$%+&,' - . %+/ ' 01) ' 2. 3. ' 4*%' &. %5"5#6' 7&. %6' 89: ; <( ==>?'@. A*%' 6$BBC7' "6' +. C+$C. 3&2' $6"5#' . CC' B&%6*56' . #&6' 8: <: D' E / *'

%&B*%3&2'/ . F"5#'E *%G&2'. 3'C&. 63'*5&'E &&G'"5'3/&'&. %5"5#6'7&. %6H'&I +C$2"5#'3/ *6&'"5'3/&'J "C"3. %7?'K/&'2. 3. '. %&'6*%3&2'"53*'

6&I <&2$+. 3"*5<&I B&%"&5+&'#%*$B6'*4'3E *'6&I &6'LJ . C&M4&J . C&NH'4"F&'&2$+. 3"*5'#%*$B6'L/ "#/ '6+/ **C'2%*B*$3H'/ "#/ '6+/ **C'

#%. 2$. 3&H'6*J &'+*CC&#&H'+*CC&#&'#%. 2$. 3&H'. 52'#%&. 3&%'3/ . 5'+*CC&#&N'. 52'D9'&I B&%"&5+&'#%*$B6'L=<D>'7&. %6'*4'B*3&53". C'

&I B&%"&5+&N?'O$J A&%'*4'7&. %6'*4'B*3&53". C'&I B&%"&5+&'"6'+. C+$C. 3&2'A7'6$A3%. +3"5#'3/&'6"I 'L3/&'. #&'. 3'E / "+/ '*5&'A&#"56'

6+/ **CN'. 52'3/&'5$J A&%'*4'7&. %6'*4'6+/ **C"5#'4%*J '3/&'. #&'*4'3/&'"52"F"2$. C?'K/ "6'5$J A&%'"6'. 2P$63&2'3*'3/&'. 66$J B3"*5'

3/ . 3'. 5'"52"F"2$. C'+. 55*3'A&#"5'E *%G'A&4*%&'. #&'8: ?'Q4'3/ "6'+. C+$C. 3"*5'"6'C&66'3/ . 5'R&%*H'3/&'7&. %6'*4'&I B&%"&5+&'. %&'6&3'3*'

&S$. C' R&%*?' K/&' C. A*%' 6$BBC7' 4*%' +*CC&#&M/ "#/ <6+/ **C' #%*$B6H' A7' &I B&%"&5+&' C&F&CH' "6' +. C+$C. 3&2' $6"5#' &44"+"&5+7' $5"36?'

T44"+"&5+7'$5"36'. %&'3/&'J &. 5'C. A*%'6$BBC7'4*%'A%*. 2'+*CC&#&'L"5+C$2"5#'+*CC&#&'#%. 2$. 3&6'. 52'#%&. 3&%'3/ . 5'+*CC&#&N'. 52'

/ "#/ <6+/ **C' L"5+C$2"5#' / "#/ ' 6+/ **C' 2%*B*$36' . 52' / "#/ ' 6+/ **C' #%. 2$. 3&N' +. 3&#*%"&6H' E &"#/ 3&2'A7' 4"I &2'%&C. 3"F&' . F&%. #&'

E . #&'E &"#/ 36'4*%'&. +/ '+&CC?'K/&'C. A*%'6$BBC7'*4'3/&'U6*J &'+*CC&#&V'+. 3&#*%7'"6'2"F"2&2'&S$. CC7'A&3E &&5'3/&'A%*. 2'+*CC&#&'

. 52'/ "#/ <6+/ **C'+. 3&#*%"&6?'K/&'4"I &2'6&3'*4'E &"#/ 36'4*%'89: ; <( ==>' . %&'+*563%$+3&2'$6"5#'3/&' . F&%. #&'E . #&'"5'&. +/ '*4'

3/&'D9='+&CC6'L( '6&I &6H'W'&2$+. 3"*5'#%*$B6H'D9'&I B&%"&5+&'#%*$B6N'*F&%'3/ "6'3"J &'B&%"*2H'%&C. 3"F&'3*'3/&'%&4&%&5+&'E . #&'*4'

. 'J . C&'/ "#/ '6+/ **C'#%. 2$. 3&'E "3/ '8='7&. %6'*4'&I B&%"&5+&?''

!

Predicted and Actual College/High-School Wage Gap,

1963 - 2008

!

"#$%&' !( ) !

!*+%&, ' -!. /&, 0!12*!3/4/!5+&!' /&6#6$7!8' /&7!( ) 9: ;<==>?!@+$!A ' ' BC8!A /$' 7!5+&!5%CC;4#D ' E!5%CC;8' /&!A+&B' &7!/&' !&' $&' 77' 3!#6!

' / , 0!8' /&!+6!5+%&!' 3%, /4#+6!3%D D #' 7!F0#$0!7, 0++C!3&+G+%4E!7+D ' !, +CC' $' E!, +CC' $' !$&/3%/4' E!$&' /4' &!40/6!, +CC' $' HE!/!

I %/&4#, !#6!' JG' &#' 6, ' E!#64' &/, 4#+67!+5!40' !' 3%, /4#+6!3%D D #' 7!/63!' JG' &#' 6, ' !I %/&4#, E!/63!4A+!&/, ' !, /4' $+&#' 7!FKC/, BE!

6+6;A 0#4' !+40' &H?!L0' ! , +D G+7#4#+6;/3M%74' 3!D ' /6!C+$!A /$' !#7!40' !G&' 3#, 4' 3!C+$!A /$' ! ' N/C%/4' 3!5+&!A0#4' 7!/4!40' !

&' C' N/64! ' JG' &#' 6, ' !C' N' C!FOE! ( OE!<OE! : OE!PO!8' /&7H! /63!&' C' N/64! ' 3%, /4#+6!C' N' C!F0#$0!7, 0++C!3&+G+%4E!0#$0!7, 0++C!

$&/3%/4' E!7+D ' !, +CC' $' E!, +CC' $' !$&/3%/4' E!$&' /4' &!40/6!, +CC' $' H?!L0' !D ' /6!C+$!A /$' !5+&!, +CC' $' !/63!0#$0!7, 0++C!#7!40' !

A ' #$04' 3! /N' &/$' ! +5! 40' ! &' C' N/64! , +D G+7#4#+6! /3M%74' 3! , ' CC7! %7#6$! /! 5#J ' 3! 7' 4! +5! A ' #$047! ' I %/C! 4+! 40' ! /N' &/$' !

' D GC+8D ' 64!70/&' !+5!' / , 0!$&+%G?!L0' !&/4#+!+5!D ' /6!C+$!A /$' 7!5+&!, +CC' $' !/63!0#$0!7, 0++C!$&/3%/4' 7!5+&!' / , 0!8' /&!#7!

GC+44' 3?!*' ' !Q/4/!RGG' 63#J !5+&!D +&' !3' 4/#C7!+6!4&' /4D ' 64!+5!. /&, 0!12*!3/4/?!L0' !S/4T;. %&G08!G&' 3#, 4' 3!A /$' !$/G!/&' !

40' !G&' 3#, 4' 3!N/C%' 7!5&+D !/!&' $&' 77#+6!+5!40' !, +CC' $' U0#$0;7, 0++C!A /$' !$/G!+6!4#D ' !4&' 63!4' &D !/63!C+$!C/K+&!7%GGC8E!/7!

D ' /7%&' 3!#6!' 55#, #' 6, 8!%6#47!3' 7, &#K' 3!#6!40' !6+4' !4+!"#$%&' !<E!5+&!8' /&7!( ) 9: ;( ) >V?!!!

Gains in Post-Secondary Education over 30 Years:

Fraction of Adults with ‘Tertiary’ Education in 2009

Source: OECD 2011

Educational Attainment by Sex:

Supply of Young College v. High School Workers, 1963-2008 ! "#$%&'( ) '

!*+$%, &-'. ) %, / '01*'2) 3) '4+%'&) %5"5#6'7&) %6'89: ( ;<==>?'*&&'5+3&'3+'! "#$%&'<?'@+#'%&A) 3"B&'6$CCA7'4+%'=;9') 52'<=;<9'7&) %6'

+4'C+3&53") A'&DC&%"&5, &'"6'CA+33&2'4+%'E ) A&6') 52'4&E ) A&6?'








4. Conclusions

Changes in Real Hourly Wage Levels 1979-2010,

by Education and Sex (Ages 25 – 39)

Source: Autor and Wasserman, 2013

D Real Earnings and D Emp/Pop, 1979 – 2008:

U.S. Males by Education and Race (Ages 25-39)


Top 1% Income Share: English-Speaking Countries

Atkinson, Piketty, Saez 2011

Top 1% Income Share:

Nordic Countries and Southern Europe


Top 1% Income Share: Middle Europe and Japan


Top 1% Income Share: ‘Developing Countries’


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.

Cross-Sectional Income Inequality and Intergenerational Earnings Elasticity








4. Conclusions

D Female Marriage Rates vs. D Male Earnings,

Ages 25 – 39, 1979-2008


D Real Earnings and D Emp/Pop, 1979 – 2008:

U.S. Males by Education and Race (Ages 25-39)


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


Disparities in Weekly Time Spent in Literacy Activities by Age

and Household Income Quintile101

Source: Meredith Phillips, 2013

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

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

0

1

2

3

41968

1972

1976

1980

1984

1988

19

92

1996

Ga

p in

years

of

co

mp

lete

d s

ch

oo

lin

g

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

26

Figure 3: Fraction of Students Completing College, by Income Quartile and Year of Birth

Source: Author’s calculation based on data from the National Longitudinal Survey of Youth, 1979 and 1997 (U.S. Bureau of Labor

Statistics, 2010a, 2010b).

.05.14

.17

.36

.09

.21

.32

.54

0.00

0.25

0.50

0.75

Lowest Quartile 2nd Quartile 3rd Quartile Top Quartile

Fra

ctio

n C

om

ple

ting C

oll

ege

1961-1964 birth cohorts

1979-1982 birth cohorts

Source: Bailey and Dynarski, 2011

010

2030

4050

slop

e

.1 .2 .3 .4 .5CENSUS 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








4. Conclusions

High Returns to Education ⇿ Low Mobility

Source: Corak, 2013

Gains in Post-Secondary Education over 30 Years:

Fraction of Adults with ‘Tertiary’ Education in 2009

Source: OECD 2011








4. Conclusions

Changes in Top Marginal Tax Rates and Changes

in Top Income Shares, 1960/64 – 2005/09

Source: Piketty, Saez and Stantcheva, forthcoming

Changes in Top Marginal Rates and

GDP per Capita Growth Rates, 1960/64 – 2006/10

Source: Piketty, Saez and Stantcheva, forthcoming








4. Conclusions

Real U.S. Minimum Wage and

10/50 Inequality, 1974 – 2011

Source: Autor, Manning and Smith, 2013

-.8

-.7

-.6

-.5

-.4

-.3

-.2

Lo

g(p

10

)-lo

g(p

50

)

1.6

1.7

1.8

1.9

22

.12

.2

Lo

g r

ea

l min

imu

m w

ag

e,

20

09

do

llars

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.

No Compelling Evidence that Modest Minimum Wages

Reduce Employment

Decades of study and debate

• Remarkably little evidence of adverse employment impacts of minimum wages

• Yet minimum wages do reduce inequality

• Polarization of occupations provides greater opportunities for labor standards to “work” effectively








4. Conclusions

Minorities, Youth and Low Education Adults

Suffer Most in a Recession

Source: Hoynes, Miller and Schaller 2012

Minorities, Youth and Low Education Adults

Suffer Most in a Recession

Sou

rce: OEC

D 2

01

3








4. Conclusions

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

taubcenter.org.il

Causes and Consequences of Inequality Herbert M. Singer Conference Series

TAUB CENTER for Social Policy Studies in Israel

מרכז טאוב לחקר המדיניות החברתית בישראל

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