AI threatens to increase inequality

[Celerity]

The debate on AI has focused mainly on its potential effect on employment. The impact on equality should not however be missed.

https://socialeurope.eu/ai-threatens-to-increase-inequality



‘Human capital’—the economic value of our cognitive and noncognitive capacities—is our most important asset. According to recent World Bank estimates, the value of human capital globally amounts to 64 per cent of total capital, while in the advanced-country members of the Organisation for Economic Co-operation and Development it is typically worth four to six times as much as physical capital. Human capital is decisive not only for welfare but also for growth, social mobility and income distribution.

Among these latter variables, the link between growth and inequality has been contentious in economic research. Three or four decades ago, the consensus in the profession was that inequality was beneficial for growth—indeed this was deemed so self-evident that empirical testing was unnecessary. When the matter was eventually investigated, the picture appeared mixed. Most studies however relied on the Gini coefficient—a spectrum between zero and one as inequality ranges overall from non-existent to infinite—as a measure of inequality. But this is a blunt instrument: two societies with the same Gini may be very different, so the lack of stable statistical correlations between growth and the coefficient should have been no surprise.

Among a smaller group of studies though, in which inequality was disaggregated into the income shares of different strata, the picture was clear: the larger the shares of the lower strata, the higher the growth rate. This was confirmed in a study of OECD countries. Nonetheless, the idea that equality is costly in terms of growth is still promoted in public debate, including by ostensibly qualified participants.

Important role

Human capital plays an important role here. As the OECD study showed, individual mobility is higher in more equal countries. The likelihood that young people whose parents have high- or medium-level education will choose higher education themselves is relatively independent of the degree of social inequality, but for children whose parents have only basic education, there is a strong negative link. High inequality is thus connected with low upward mobility.

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