Automation drives income inequality

When you use self-checkout machines in supermarkets and drugstores, you are probably not—with all due respect—doing a better job of bagging your purchases than checkout clerks once did. But such automation lets employers cut spending on labor in a way that has contributed significantly to income inequality in the US. 

A new study coauthored by MIT economist Daron Acemoglu estimates just how much: replacing workers with technology “explains 50 to 70%” of the increase in inequality from 1980 to about 2016.

Acemoglu and coauthor Pascual Restrepo, PhD ’16, looked at US Bureau of Economic Analysis statistics on the extent to which human labor was used in 49 industries from 1987 to 2016—as well as data on machinery and software adopted in that time—alongside Census Bureau metrics on worker outcomes for roughly 500 demographic subgroups, broken out by gender, education, age, race and ethnicity, and immigration status. 

They concluded that since 1980, automation has reduced the wages of men without a high school degree by 8.8% and women without a high school degree by 2.3%, adjusted for inflation. Incomes for people with college and postgraduate degrees have risen substantially during that period.

Moreover, they say that although these specific innovations have been good for the corporate bottom line, they have not yielded much in the way of productivity gains that would improve overall quality of life.

“These are controversial findings in the sense that they imply a much bigger effect for automation than anyone else has thought,” Acemoglu says.