General Discussion: Causes of Changing Earnings Inequality

Mr. Crockett: May I make an analogy and see whether it conveys any insights? In the finance field, we think of technology and liberalization as having driven the enormous changes in financial markets. Technology enables the better pricing of risk; liberalization allows risk to be more efficiently managed and traded. Could one say that something similar is taking place in labor markets? Technology, in the form of managerial developments, has enabled us to assess better the marginal product of labor, and thus to differentiate among previously apparently similar labor inputs. And liberalization has made it more acceptable to carry that differentiation forward into wages and salaries, even in areas where it was previously accepted that labor pricing had to be much more homogeneous. In other words, are factors like technology and liberalization driving greater wage dispersion?