The Race Between Education and Technology Revisited An Integrated Approach to Explaining Income Inequality

We analyze the presumed inequality increasing effect of technological change and the mitigating role of education in this context. In order to do so, we take an integrated approach in two respects. First, we look at a broad set of countries, including Advanced as well as Developing Economies, and analyze global and differential broad regional trends in income inequality. Second, we examine a broad set of determinants besides education and technological progress in order to disentangle the concerning effects. We assembled a unique dataset that combines multiple income inequality indicators, the income Gini coefficient and a ratio of extremes, with the most recent data on multiple drivers. In accordance with theoretical predications, we find that increasing income inequality can be explained by technological progress to a large extent. We were not able to find the strong mediating effect of education which is implied by Tinbergen’s and Goldin and Katz’s Race between Technology and Education. In contrary, we find a more equal distribution of education to increase income inequality in the global sample as well as in Advanced Economies. After accounting for the demographic structure of the population the effect is not significantly different from zero. However, in Developing Economies, the rise in basic schooling has contributed to increasing the share of income accruing to the bottom decile of the income distribution.