Wage Inequality and the New Economy in the US: Does IT-Led Growth Generate Wage Inequality

Abstract

This paper examines whether the late 1990s IT-related growth has led to a corresponding growth in wage inequality. This is of interest because observers, including Alan Greenspan, have suggested that the boom caused growing wage inequality and even job insecurity. The late 1990s also provide insights regarding the claim that technological change generated the wage inequalities of the 1980s. We conclude that overall wage inequality, skill differentials, and within-group wage inequality did not grow in the IT-led new economy boom. So, inequality is not the price of technology-led growth. There are numerous reasons to be sceptical about a technology explanation of wage inequality. There is no evidence that technology affects the inequality among workers of similar experience and education, a dimension that accounts for 55 percent of the growth of inequality. Nor is there evidence that technology has had a larger impact in the 1990s or 1980s than in earlier periods.