Technology, education and inequality

Part two: Why has inequality widened so much?

In the first part of this article we examined arguments claiming that inequality is being driven by technology — and counter-arguments pointing out that this is somewhat disingenuous. Technology is a tool, and it’s how we choose to use that tool that counts. Blaming technology can be a handy technique for political elites; it means they can claim inequality is not politically driven or that political decisions could not reduce it. Globally, real GDP growth has increased from just under 3% (trend) in 1980 to just over 4% (trend) in 2015 (estimated figure; source IMF). Meanwhile, poverty headcount rate has dropped dramatically, from 37.1% in 1990 to 12.7% in 2012. (Source: World Bank.) So wealth across the world is growing; but it it’s growing at a far greater pace for the very rich than it is for everyone else.

If technology is not to blame, what is? Economist Thomas Piketty argues that the gap between rich and wealth is now far more extreme than could have been imagined just a few decades ago. In the US, the richest 1% of the population now owns over one third of the country’s accumulated wealth. 15% is owned by the top 0.1%. Recessions slow down but do not alter this trend — ‘inequality has only gotten worse since the last recession ended,’ writes David Rotman. ‘The top 1 percent captured 95 percent of income growth from 2009 to 2012, if capital gains are included.’

What are we to make of this? ‘The disparity in the portion of income earned from work — what economists call labor income — is particularly striking,’ says Rotman. Wage inequality in the US is ‘probably higher than in any other society at any time in the past, anywhere in the world,’ says Piketty. ‘In the aftermath of the recession, much of the recovery went to the very rich,’ says Rotman. ‘Meanwhile those with low levels of education are falling behind.’

For Piketty, much of the problem lies with salaries paid to ‘supermanagers’. Rotman’s article points out that according to Piketty’s figures, ‘about 70 percent of the top 0.1 percent of earners are corporate executives.’ Usually, rising inequality is explained by the race between demand and supply of high skills. ‘I think that this is an important part of the overall explanation,’ Piketty says, ‘but this is not all. In order to explain why rising inequality has been so strong at the very top in the U.S., one needs more than a skill-based explanation.’ The answer is to found in ‘pay-setting institutions and corporate governance,’ and Piketty concludes, ‘above a certain level, it is very hard to find in the data any link between pay and performance.’ Again — the problem is political, not technological.

In the UK and to an extent France the problem is slightly different; ‘accumulated wealth, much of it inherited, is returning to relative levels not seen since before the First World War,’ according to Rotman. ‘Privately held wealth in some European countries is now about 500 to 600 percent of annual national income, a level approaching that of the early 1900s.’

For Piketty, this is ‘a radical departure from how we have thought about progress.’ Inequality is supposed to reduce as countries become more technologically developed. ‘Many of us suppose that our talents, skills, training, and acumen will allow us to prosper; it is what economists like to call “human capital.” ’ But — this is not happening.

Creating connections

It’s at this point that the importance for higher education becomes apparent. ‘Though income growth among the top 1 percent is an important phenomenon,’ writes David Rotman, quoting his colleague David Autor, a MIT economist, ‘the disparity in skills and education among the other 99 percent is “a big deal, a much bigger deal.” The gap between median earnings for people with a high school diploma and those with a college degree was $17,411 for men and $12,887 for women in 1979; by 2012 it had risen to $34,969 and $23,280. Education, Autor says, “is the most powerful thing you can do to affect lifetime earnings.” ’

Rather than driving inequality, technology drives connectivity. From a higher education perspective, it enables people to learn anywhere, reduces access costs, reduces the costs project work and real-time modelling, enables people to stay in touch cost-free and aids collaboration.

In part three of this article, published Tuesday, we’ll consider what providers need to do in terms of creating greater access to learning within this changed environment.

Sources will be at the end of the final part.

This article was first published at

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