A further part of the argument that technological change is contributing
to rising income inequality is that the same technologies that automate
the middle-skilled jobs cannot do so for many of the economy’s lowest-
skilled jobs. Much of the work done by janitors, hotel maids, and
restaurant servers, for example, cannot be automated by even the most
sophisticated robots. As a result, the displaced workers from the “middle”
of the income distribution are now increasingly competing with the
lowest-skilled workers for scarce jobs at the bottom of the income
distribution.
The overall result is what is now called a hollowing out of the labour
market—growing employment and rising wages among high-skilled
workers, falling employment and wages among the middle-skilled
workers, and rising employment but falling wages among low-skilled
workers. These changes tend to increase income at the top of the
distribution and reduce it at the bottom—thus increasing the degree of
income inequality.
Globalization
The ongoing forces of globalization tend to reinforce these labour-market
changes. Especially in manufacturing industries, reductions in
communications and transportation costs, combined with increases in
competition from foreign firms, is increasingly leading domestic firms to
locate their production facilities in countries where costs are low. This
“outsourcing” of jobs by firms who close their North American facilities
and open lower-cost facilities in Bangladesh or Sri Lanka or Vietnam has