Many debates revolve around the fact that both within group skill levels (as in amongst high school graduates or college graduates, for example) and between group skill levels (comparing high school to college graduates) income disparity has been increasing. This fact has been politicized many times and is used as a catch-all method to support almost any policy: why we need more of a welfare state, why we need less of a welfare state or a higher minimum wage, why we need more funding (or less) for public education, why we need higher or lower taxes, more progressive taxes, et cetera. I am not going to speculate on the need to change this trend or its best method but simply to offer an explanation… Most large socioeconomic phenomena such as these do not have a single solution, so consider this article to contain one of many explanations.
In microeconomic theory, most production can be boiled down into two inputs: capital (K) and labor (L). There is significant overlap (some would say that a well-trained workforce is a form of capital), but for simplicity sake let’s say these are well-defined. Capital includes things like buildings, property, machines, computers, or other pieces of equipment intended to make the labor more productive. You can hire as many cooks as you want, but without an oven, they can’t do anything. Labor can be split up in many ways, and I may overuse some terms in this article. In many cases, people refer to skilled and unskilled workers only by the credentials they earn… skilled workers have college degrees and unskilled workers do not. This article’s scope, however, is the impact on intra-skill group income disparity from technological implementation. For this article, skilled laborers are those who can use this new technology, while unskilled laborers cannot.
The theory claims that as capital increases naturally (such as an exogenous increase in technology), labor’s marginal product increases as well. This is because the labor can use the better capital to become most efficient. But delving more into the details lies the discrepancy. The very type of labor that becomes better is already skilled: management types adept at using macros to streamline large manufacturing processes, sales types able to efficiently integrate presentation software, financial gurus able to use programming languages and computer engineers who create many of these technologies. Those who are not able to sufficiently use the technology are actually now competing with the capital itself! This is at the crux of the arguments about machines taking jobs and economists claiming that it is good for the nation.
This difference in the ability to use the technology explains both within- and between- group disparity. For between-group disparity, those in the higher skill tier are much more likely to have the skills and experience in the line of work most likely to use the skills required. For within-group disparity (as my colleague Paul would assuredly agree), those who are less focused on technical prowess in obtaining their credentials (sorry Anthropology majors) may see some of their jobs face the greatest competition over the next twenty years.
A point of note: in the past, it was necessary to put computer skills on one’s resumé such as word processing and spreadsheet manipulation. Nowadays, these skills have become commonplace and almost are superfluous on a resumé. At a recent interview for a consulting role, the fact that I had (extremely brief) exposure to C++ and Java was seen as a plus. I do not know why.