Wednesday, June 22, 2022

Digital Era — Poor productivity and rising economic inequality

In the span of about 40 years, the Digital Era has brought new technologies that have benefited people's lives on all continents. However, since the end of the Second World War, the decades from 1980 have seen more economic inequality and concentration of wealth in advanced countries in particular.

Big digital companies are near-monopolies in their markets and can buy young companies to either use new technologies or kill them.

In recent decades aggregate productivity growth has fallen in many economies resulting in poor economic growth trends.

So-called frontier firms are doing well but there are many more laggards. 

In May 2022 the Brookings Institution of the United States published a report titled 'An Inclusive Future? Technology, New Dynamics, and Policy Challenges.' It has contributions from leading economists.

The report says "Income inequality has risen in most countries since the 1980s. Practically all major advanced economies have experienced a rise in income inequality, and the increase has been particularly large in the United States, the country at the leading edge of the digital revolution.

Those with middle-class incomes have been squeezed. The typical worker has seen largely stagnant real wages over long periods — and increased anxiety about job loss from automation. Intergenerational economic mobility has declined. Income distribution trends are more mixed in emerging economies but many of them—and most of the major emerging economies — also have experienced rising inequality. Figure 1 shows the trend in the Gini coefficient, a broad measure of inequality, in the 19 major advanced and emerging economies that are members of the G20 (the EU is the 20th)."