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for Social Policy Studies in Israel בואט זכרמ TAUB CENTER לארשיב תיתרבחה תוינידמה רקחל Causes and Consequences of Inequality Herbert M. Singer Conference Series taubcenter.org.il

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 Inequality – Causes 1. • Technological revolutions • International competition • The ‘education race’ Inequality – Concerns 2. • Inequality and economic mobility • Household structure and investments in children Inequality – Policy responses 3. • Education • Taxation • Labor standards • Macroeconomic policies Conclusions 4.

Not One but Two Technological Revolutions: The Green Revolution and the Industrial Revolution 1840 1900 1950 2010 90% 78% 80% 68% 70% 60% 52% 50% 40% 40% 37% 33% 30% 27% 22% 20% 20% 11% 10% 10% 2% 0% Agriculture Industry Services Johnston 2012

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 Informa4on#Processing#Equipment#+#SoBware#Share#of#All#Private#NonI Residen4al#Investment,#1959#I#2010#(Source:#BEA#NIPA)# 0.40# 0.36# 0.32# 0.28# 0.24# 0.20# 0.16# 0.12# 0.08# 0.04# 0.00# 1959# 1962# 1965# 1968# 1971# 1974# 1977# 1980# 1983# 1986# 1989# 1992# 1995# 1998# 2001# 2004# 2007# 2010#

Substitution, Complementarity: Tasks and Technology Example Potential Impact of Task Occupations Computerization Description Routine Tasks • ‘Rules - based’ • Bookkeepers • Direct Substitution • Repetitive • Assembly line • Procedural workers Abstract Tasks • Abstract • Scientists • Strong Complementarity problem-solving • Attorneys • Mental • Managers flexibility • Doctors Manual Tasks • Environmental • Truck drivers • Limited Complementarity Adaptability • Security guards or Substitution • Interpersonal • Flight attendants Adaptability • Home health aides • Waiters • Cleaners

U.S. Job Task Input by Education Group in 1980 College Grads 100% 90% Some College HS Graduates 80% HS Dropouts Some College HS Dropouts 70% HS Graduates HS Graduates 60% Some College College Grads College Grads 50% HS Dropouts 40% 30% 20% 10% 0% Manual Tasks Abstract Tasks Routine Tasks Autor, Levy and Murnane, 2003

Employment Polarization, 1979 – 2010 Percent Growth in Employment by Occupation Percent Change in Employment by Occupation, 1979-2010 .6 .4 .2 0 -.2 Personal Care Food/Cleaning Service Protective Service Operators/Laborers Production Office/Admin Sales Technicians Professionals Managers 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 US v. EU EU Nations Ordered by Growth in High Skill 20 Averages Occupation Share 10 0 -10 -20 EU Average Ireland Finland Greece Sweden Spain Luxembourg France Austria USA Portugal Norway Netherlands UK Germany Belgium Denmark Italy Lower Third Middle Third Upper Third Source: Goos, Salomons and Manning (2009)

Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses Inequality – Causes 1. • Technological revolutions • International competition • The ‘education race’ Inequality – Concerns 2. • Inequality and economic mobility • Household structure and investments in children Inequality – Policy responses 3. • Education • Taxation • Labor standards • Macroeconomic policies Conclusions 4.

Chinese Imports Surge Following its 2001 WTO Accession — U.S. Manufacturing Employment Declines Simultaneously .05 .14 .04 Manufacturing emp/pop .12 Import penetration .03 .02 .1 .01 .08 0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Year 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, United States New Zealand, Spain, and Switzerland

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 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 & 1990L2000& 2000L2007& 0.2% 0.0% !0.2%%% Percentage&Points& !0.4%%% !0.6%%% L0.7&%& !0.8%%% L0.9&%& !1.0%%%

Negative Impacts Begin with China’s Rise in the 1990s 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 & 1970L1980& 1980L1990& 1990L2000& 2000L2007& 0.60&%& 0.4&%& 0.40&%& 0.20&%& 0.00&%& Percentage&Points& L0.1&%& L0.20&%& L0.40&%& L0.60&%& L0.7&%& L0.80&%& L0.9&%& L1.00&%&

Impacts on Manufacturing Emp, Non-Manufacturing Emp, Unemployment, Non-Participation 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& All&EducaRon&Levels& College&EducaRon& No&College&EducaRon& 0.8& 0.6& 0.4& 0.3&%& 0.2&%& 0.2&%& 0.2& 0.1&%& 0.0& L0.2&%& L0.2&%& L0.4&%& L0.6&%& L0.5&%& L0.6&%& L0.6&%& L0.6&%& L0.8&%&

Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses Inequality – Causes 1. • Technological revolutions • International competition • The ‘education race’ Inequality – Concerns 2. • Inequality and economic mobility • Household structure and investments in children Inequality – Policy responses 3. • Education • Taxation • Labor standards • Macroeconomic policies Conclusions 4.

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

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 /*

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!#

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 !

Rising Inequality in Industrialized Nations: Causes, Concerns, and Policy Responses Inequality – Causes 1. • Technological revolutions • International competition • The ‘education race’ Inequality – Concerns 2. • Inequality and economic mobility • Household structure and investments in children Inequality – Policy responses 3. • Education • Taxation • Labor standards • Macroeconomic policies Conclusions 4.

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) Source: Autor and Wasserman, 2013

Top 1% Income Share: English-Speaking Countries Atkinson, Piketty, Saez 2011

Top 1% Income Share: Nordic Countries and Southern Europe Atkinson, Piketty, Saez 2011

Top 1% Income Share: Middle Europe and Japan Atkinson, Piketty, Saez 2011

Top 1 % Income Share: ‘Developing Countries’ Atkinson, Piketty, Saez 2011