Economic Inequality in the Digital Age: How Is Technology Widening the Wealth Gap?

New technologies like artificial intelligence, machine learning, robots, big data, are predicted to transform manufacturing processes and networks and  have a significant effect on emerging nations' economy. According to a new staff study from the International Monetary Fund, more investment in advanced economies with established automation systems runs the danger of expanding the wealth divide between wealthy and poor countries. Because less developed economies have historically benefited from an expanding labour force, this might have a detrimental impact on jobs in emerging nations by posing a threat to replace rather than supplement them. Policies in emerging economies will need to focus on increasing worker skill levels and productivity to stop this rising disparity.

Strong demand for investments in conventional capital and robots is driven by the rise in productivity of robots (which is thought to be complimentary to robots and labour). Because robots are utilised more often in industrialised economies, there is a greater demand for them (the "share-in-production" channel outlined above). Because of this, investment is pulled out of developing nations to support the accumulation of capital and robots in developed economies, which causes a temporary decrease in GDP in the developing nation.

A developing economy, which has more of it than an advanced one, would probably focus on industries that use unskilled labour more frequently. After the robot revolution, there may be a long-term fall in the terms of trade in the developing region, assuming robots displace unskilled labour while enhancing skilled people. This is because the price of the commodity that employs unskilled labour more intensively will decrease and their relative earnings will be reduced as a result of robots' disproportionate displacement of unskilled workers. Its primary output's decline in relative price thus serves as a further deterrent to investment, which might result in a decline in GDP both relative and absolute.

If robots can readily replace labour, then productivity gains will drive the gap between developed and developing nations. Furthermore, in both developed and emerging countries, those advancements will likely result in higher salaries but also greater income disparity, at least initially during the transition and perhaps in the long run for some worker groups.

Legislators ought to take action to reduce such dangers. A radical change to quickly boost productivity gains and invest in education and skill development would capitalise on the much-anticipated demographic transition, especially in the face of these new technologically-driven challenges.

Bibliography

Alonso, C., Kothari, S. and Rehman, S. (2020) How artificial intelligence could widen the gap between rich and Poor Nations, IMF. Available at: https://www.imf.org/en/Blogs/Articles/2020/12/02/blog-how-artificial-intelligence-could-widen-the-gap-between-rich-and-poor-nations (Accessed: 23 August 2024).