The impact of IT investment on income and wealth inequality in the postwar US economy

Abstract

Inequality in the distribution of family income, which had remained virtually unchanged since the end of World War II until 1968, has increased sharply since then. Inequality in household wealth has increased even more dramatically, with the share of the top 1% doubling since 1976. Perhaps, the most notable technological change over the past 30 years has been the widespread diffusion of computers in the United States. However, when we consider the aggregate time-series regression results, we find that the largest effects on income inequality come from equipment investment and unionization. OCA investment is also found to have a positive and significant effect on income inequality, though not as strong as equipment investment. On the other hand, TFP and labour productivity growth, as well as R&D investment, have no statistical effect on income inequality. Unionization has a decidedly negative effect on income inequality. With regard to wealth inequality, the only two significant effects come from the ratio of the S&P 500 stock index to median house, which has a very strong positive relation, and the minimum wage in constant dollars, which has a negative and less strong relation. None of the other variables is statistically significant. However, investment in OCA per worker has a very strong positive relation to movements in stock prices, which suggests that it is indirectly linked to changes in wealth inequality.