The rate and direction of technological change and wealth and income inequalities in advanced countries

Abstract

The paper uses Schumpeter's legacy tools to analyze the specific and distinctive effects of the rates and directions of technological change on the two distinct ingredients of the income distribution – wage and wealth inequality. It argues that the trend towards rising wage and wealth inequalities in high-income countries could be limited by the Schumpeterian creative destruction brought by the introduction of radical technological change with clear labor-intensive and capital-saving biases. Radical and labor-intensive, job-enriching technological change can contribute to decreasing wealth inequality and increasing both the share of labor in income and its even distribution across workers, thereby reducing wage and income inequality generally. Empirical evidence from a large sample of advanced high-income countries over the period 1995 to 2011 supports the hypothesis that rapid rates of introduction of radical and labor-intensive technological change are a valid antidote to income inequality in advanced countries.