Solving the Income Inequality Problem

In the previous post, I noted that one of the major causes of income inequality was the rise of technology. In fact, it may be the primary cause of an increased income inequality here in the US.

Today, published an article with this headline: “One in three jobs will be taken by software or robots by 2025.

Read that again:

One in three jobs will be taken by software or robots by 2025

Author and economist Tyler Cowen states in his book, Average Is Over: Powering America Beyond the Age of the Great Stagnation:

What is happening is an increase in the ability of machines to substitute for intelligent human labor, whether we wish to call those machines “AI,” “software,” “smart phones,” “superior hardware and storage,” “better integrated systems,” or any combination of the above.

Machines are now capable of learning. And they can now or will shortly in the future be able to do many jobs that humans now do. Cowen continues:

let’s say that machine intelligence helps us make a lot more things more cheaply, as indeed it is doing. Where will most of the benefits go? In accord with economic reasoning, they will go to that which is scarce. In today’s global economy here is what is scarce: 1. Quality land and natural resources 2. Intellectual property, or good ideas about what should be produced 3. Quality labor with unique skills.

Here is what is not scarce these days: 1. Unskilled labor, as more countries join the global economy 2. Money in the bank or held in government securities, which you can think of as simple capital, not attached to any special ownership rights (we know there is a lot of it because it has been earning zero or negative real rates of return)

Higher income will go to those with unique skills, particularly those with backgrounds in math and technology. “The ability to mix technical knowledge with solving real-world problems is the key, not sheer number-crunching or programming for its own sake. Number-crunching skills will be turned over to the machines sooner or later.”

So what is the solution to the income inequality that we face? Education, particularly in the science and technology areas. Why?

Photo from University of Connecticu
Photo from University of Connecticut

There is a structural shift taking place in the economy that is being driven by technology. There is a metaphor making the rounds describing this: a modern textile mill employs only a man and a dog—the man to feed the dog, and the dog to keep the man away from the machines.

But there’s another area where job growth will come. As those at the top earn more, they will want more experiences to help them feel better in just about every part of their lives. As a result, we “can expect a lot of job growth in personal services, even if those jobs do not rely very directly on computing power…This will mean maids, chauffeurs, and gardeners for the high earners, but a lot of the service jobs won’t fall under the service category as traditionally construed. They can be thought of as ‘creating the customer experience.’”

So our education needs to emphasize technology. But it also needs to emphasize entrepreneurship, because this will become an experiential economy. And this creates opportunities for people to start businesses that focus on personal services, everything from maids to personal trainers and to assistants. And some of these services can bring in good wages.

Let’s face it, in a few years there will likely not be a lot of people working in fast food because technology has the power to do many roles within that market.

But start a business doing personal services, or having a career where you’re comfortable around technology and utilizing it well, and there’s a good chance a person could do well financially in the future.

But education must be retooled for that. And people can’t expect a “hand-out” economy either, and we are there.

“Two economists, Alan Krueger (as of 2013, President Obama’s chief economic adviser) and Andreas Mueller, surveyed over six thousand unemployed workers. They found that many of these workers are not willing to take jobs for much less than their previous salaries. Furthermore, this stubbornness does not much disappear over time, at least not since 2011–2012. However unrealistically, most of these individuals are holding out for a better offer than what the American economy is serving up.”

So a huge part of the solution to the income inequality problem is found in education and entrepreneurship. If we can motivate people in those areas, the well curve can once again be a bell curve.

David has been a systems thinker most of his life. He has started three businesses as well as designed and developed systems and processes in existing organizations. He has a Doctorate in Leadership and has also done additional post-graduate work in communications.

He has also pastored 3 churches and loves to think about, write about and podcast about scripture, theology, and leadership.

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