Reconciling Globalisation and Technological Change: Growing Income Inequalities and Remedial Policies

Since the mid-1970s wage inequality and skills differentials have increased sharply in OECD countries, and the following have been singled out by economists as possible major contributors: (a)economic globalisation processes; (b)skill-biased technological change; and (c) public policy or institutional change. Although these factors are most commonly considered as independent influences, we argue after critically outlining views about the two first mentioned factors, that strong interdependence exists between these influences. The article then examines potential policy responses to this growing inequality. Protectionism, increased provision of education and skill-enhancement, greater compensation via social services for the disadvantaged and negative income-tax systems are examined as possibilities. These policies are all found to have limited ability to address the problem. Ability to implement several of these policies may be severely restricted by international fiscal competitiveness. Furthermore, greater provision of educational services may add to the skill-based type of income inequality currently of concern.