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The Resurgence in Wage Inequality and Technological Change: A New Approach

Periodic Reporting for period 3 - CBTC (The Resurgence in Wage Inequality and Technological Change: A New Approach)

Reporting period: 2019-09-01 to 2021-02-28

Social-science explanations for rising wage inequality have reached a dead end. Most economists argue that computerization has been primarily responsible, while on the other side of the argument are sociologists and political scientists who stress the role of political forces in the evolution process of wages.

In this ERC project I advance an original theory on the complex dynamics between technology and politics in order to solve two unsettled questions regarding the role of computerization in rising wage inequality: First, how can computerization, which diffused simultaneously in rich countries, explain the divergent inequality trends in Europe and the United States? Second, what are the mechanisms behind the well-known observed positive correlation between computers and earnings?

The main objectives of this project are, therefore, to:
1) Theorize the delayed rise in wage inequality in Europe and the sharp rise in the United States, underlining the interaction between computers and class politics in producing the observed trends.
2) Develop a new structural conceptualization of the mechanisms behind the positive correlation between computerization and earnings, while emphasizing how the process of computerization transformed the politics of the production process in a way that increased the bargaining power of experts and managers and hence their relative earnings.
3) Pose an original approach to measuring computerization that captures the form of workers’ interaction with computers at work, making it possible to empirically test the two theses.
4) Form a research strategy for analysing the effect of computerization on the wage structure across countries and workplaces, and over time.

This research project challenges the common understanding of technology’s role in producing economic inequality, and would thereby significantly impact all of the abovementioned disciplines, which are debating over the upswing in wage inequality, as well as public policy, which discusses what should be done to confront the resurgence of income inequality.
During the last 30 months, the project team made a significant advance in gaining a better understanding of the relations between technology and politics in producing economic inequality. Four central papers are currently under review by leading journals, and two additional papers are in advance stage. All papers demonstrate that, in contrast to what we have believed, rising inequality has very little to do with technology, in and of itself, and a lot to do with politics and power.
A significant advance has made in reaching the four main objectives of this project. First, the project team developed a new institutional agenda stating that politics, broadly defined, mitigates the effects of technological change on wages by stimulating norms of fair pay and equity. Second, we also formulated a truly novel perspective that conceptualizes the earnings advantage that derives from computerization around access to and control of information on the production process. Third, to make it possible to empirically examine these new theories, we collected and analysed data from several sources for many occupations in order to construct a new database on occupations that contains rich information on the scope of their computerization. Lastly, we established several research strategies for analysing the effect of computerization on the wage structure across OECD countries and workplaces, and over time.