The causes of rising wage inequality: the race between institutions and technology

Many inequality scholars view skill-biased technological change-the computerization of workplaces that favours high-skilled workers-as the main cause of rising wage inequality in America, while institutional factors are generally relegated to a secondary role. The evidence presented in this article, however, does not support this widely held view. Using direct measures for computers and pay-setting institutions at the industry level, this article provides the first rigorous analysis of the independent effect of technological and institutional factors on rising wage inequality. Analysing data on 43 US industries between 1968 and 2012, we find that declining unions and the fall in the real value of the minimum wage explain about half of rising inequality, while computerization explains about one-quarter. This suggests that much of rising inequality in the USA is driven by worker disempowerment rather than by market forces-a finding that can resolve the puzzle on the diverging inequality trends in USA and Europe.