Inequality and Technology.

Robot with Benedict XVI. [A]

One of the explanations for income/wealth inequality is technological advancement.

The reasoning that often underlies this explanation goes something like this: newer, more productive technology requires more technically capable operators; more educated individuals in possession of these higher skills, being more productive, command higher incomes than their less technically adept, less educated and less productive counterparts.

Or, as The Wall Street Journal, quoting research by the IMF, put it back in 2008:

" 'The disequalizing impact of financial openness (...) and technological progress appear to be (...) increasing the premium on higher skills, rather than limiting opportunities for economic advancement,' Jaumotte, Lall, and Papageorgiou write.
"The authors say that the best solution to this problem is increased education. 'Broader access to education will allow a greater segment of the population to take advantage of the opportunities from globalization and technological change' they said". (Emphasis added. See here)

Sounds fair, right?

Too bad that the people at Rio Tinto did not read WSJ or chose to ignore the theory of marginal productivity of labour: their Mine of the Future ™ programme introducing 150 driverless robotic trucks to replace their current fleet of conventional trucks aims to replace human drivers, whose only skill is to drive a humongous truck, with highly skilled operators.

However, unlike WSJ's theory suggests, these more highly skilled, educated operators are not supposed to earn higher wages.

From yesterday's 7:30 (from ABC):

"PETER STRACHAN, ANALYST: You aren't using the same sort of people, different skill set, different cost base. You don't have to accommodate them, you don't have to fly them in and out. All those costs come off for the company, and it's a matter of saying, 'Well instead of having someone we have to pay $300,000 a year, say, to be on-site, flying in, flying out, all the extra cost of fly in/fly out, we can get a skilled person for $75,000 or $80,000 a year to do that same job'." (Emphasis added. See here)

So much for the theory, I guess.

Update:
24-02-2012. David Ruccio has a very insightful piece on outcome fairness under capitalism. This is a big topic, with implications for the study of inequality, for instance.

But it also has other implications: capitalism is often justified (or legitimized, to be more precise) with the argument that "you get what you deserve". Your wages are proportional to your productivity: capitalism is supposed to be "meritocratic".

As I've shown above, this is not generally true.

If you are on the receiving end, you are entitled to say this is unfair. However, it is legal and legitimate under capitalism. And no appeal to fairness or justice will ever change this. I've written about this already.

So, if you don't like it, you better do something about it.

Image Credit:
[A] Robot con Benedicto XVI, by Certo Xornal. Wikipedia