The major economies, immersed in a process of rapid technological change, have slowed productivity growth, which represents a paradox. Is there a link between technology, productivity and distribution that explains these trends? Of course, lower productivity growth and rising inequality have common causes, among which technological change and its interaction with market and policy failures play an important cross-cutting role. Responding to the profound changes with which digital technologies are reshaping markets and work will require much policy innovation.

Evidence of technological change, led by advances in digital technologies, is everywhere. Just look at cell phones and increasingly sophisticated computer systems, the digital platforms that are transforming information, communication and the growing use of robotics and artificial intelligence. Technology is a key driver of productivity growth, enabling people to reach peak efficiency levels. How is it that productivity growth has slowed in major economies over the last couple of decades as technologies have flourished? What explains this paradox?

Simultaneously, income inequality has been rising in most major economies. The distribution of income from labor and capital has become more unequal, and income has shifted from labor to capital. Could these trends in productivity and inequality, which have been especially marked in advanced economies, be interrelated?

Slowing productivity and rising income inequality have become two predominant concerns of our time. Their combination leads to weaker and less inclusive economic growth, causes slower and more uneven improvement in quality of life, and contributes to social problems and divisions. Both are linked to the forces that have emerged in the wake of the recent rise of political populism in many major economies. How should policies respond to revitalize productivity and incentivize a more inclusive pattern of growth?

This article seeks to address these questions through analysis of recent and ongoing research. These questions are relevant and of great interest. As expected, they have generated much analytical research and debate on the policies that should be implemented. The aim of this text will be to provide an overview of the key issues and findings, and how they are reshaping the policy agenda.

BOOMING TECHNOLOGY, SLOWING PRODUCTIVITY AND GROWING INEQUALITY

The last two decades have been marked by a boom in digital technologies: there have been advances in computer systems, mobile telephony, communication platforms, robotics, etc. How relevant are these new technologies in terms of their potential to promote productivity and economic growth? There is a great deal of debate on this issue. On the one hand we have the “technopessimists,” who believe that recent technological advances are inherently less relevant than their predecessors and simply do not bring the kind of benefits, in terms of productivity and growth for the economy as a whole that earlier technological advances, such as the internal combustion engine and electrification, enabled (see, for example, Cowen, 2011; Gordon, 2016). They also believe that most of the fruits of digital technologies were already reaped when they were introduced, and that subsequent innovations have been incremental in nature. At the opposite end of the debate we have the “techno-optimists,” who believe that digital technologies are transformative, that they have the capacity to drive rapid productivity growth, that their benefits are merely subject to delays, and that they come in successive waves (see, for example, Brynjolfsson and McAfee, 2011; Mokyr, 2014). They argue that even if the benefits of the first wave of digital innovations are considered to have already materialized, productivity could still benefit from subsequent waves of innovation, such as radical increases in mobility thanks to smartphones, cloud storage, 3D printing, artificial intelligence, and the internet of things.

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