Are Meta and Co. to blame for income inequality?
Nov 2022
Power of the tech corporations
Big tech companies are getting bigger and bigger. Is this exacerbating income inequality? Yes, says economics professor David Dorn. Income is being redistributed more strongly from labor to capital.
This report by Pascal Lago was originally published in German by Swiss National Radio «SRF», 13 November 2022. Translated and edited for layout purposes by the UBS Center.
Facebook, Amazon, and other big tech giants dominate today's digital world and earn billions in profits every year. The main profiteers are the company owners - for example, earning dividends from their shares.
David Dorn, an economics professor at the University of Zurich, sees this as one reason for growing income inequality: "Because of these profitable firms that have a lot of market power, total income is redistributed away from labor toward capital."
The redistribution from labor income to capital income takes place even when the big tech companies pay high wages. "The big tech companies are so profitable because of their quasi-monopoly that they earn much more than they have to pay in wages," Dorn said.
Big tech companies in crisis
At the moment, however, the big technology companies are in crisis. This follows the massive earnings the owners of big tech companies reaped in recent years. Now the corporations have lost billions of dollars in value. Facebook laid off 11,000 employees Wednesday, and Amazon announced a hiring freeze last week.
Despite the billions in losses, David Dorn does not believe that the tech giants will lose their market power and again shrink. The large tech groups will suffer, however, from the current uncertain economic climate like all other companies.
But that has nothing to do with the fact that Facebook and Co. suddenly have more competition. Competition still suffers, even though the big companies are currently experiencing turbulent times and cutting jobs.
Attractive products and great market power
According to economist Dorn, there is a major dilemma in politics: "Many of these companies have become big precisely through innovation and attractive products. At the same time, however, there is an increasing danger that companies with too much market power will be able to impose excessive prices".
Dorn addresses what tech companies are saying in response to his criticism: consumers and other companies are happy to use the services of Facebook, Amazon and Google, and pay for them with money or data. If the tech companies grow, that's also good from the consumer's point of view.
Other reasons for redistribution
Other experts emphasize that there are other reasons for the redistribution from labor income to capital income. Digitalization, for example, is generally very central.
Not only the largest companies, but all companies become more efficient and productive when they have to hire fewer workers and can produce the same amount thanks to automation.
Big tech companies are getting bigger and bigger. Is this exacerbating income inequality? Yes, says economics professor David Dorn. Income is being redistributed more strongly from labor to capital.
This report by Pascal Lago was originally published in German by Swiss National Radio «SRF», 13 November 2022. Translated and edited for layout purposes by the UBS Center.
Facebook, Amazon, and other big tech giants dominate today's digital world and earn billions in profits every year. The main profiteers are the company owners - for example, earning dividends from their shares.
David Dorn, UBS Foundation Professor of Globalization and Labor Markets and Director of the University of Zurich Research Priority Program (URPP) 'Equality of Opportunity'
This report was conducted at the sidelines of the 2022 Forum for Economic Dialogue on 'Superstar Firms', where Prof. Dorn held the Welcome Address
The rise of superstar firms
Contact
UBS Foundation Professor of Globalization and Labor Markets
David Dorn is the UBS Foundation Professor of Globalization and Labor Markets at the University of Zurich where he also serves as director of the interdisciplinary University Research Priority Program “Equality of Opportunity”. He was previously a tenured faculty member at the Center for Monetary and Financial Studies (CEMFI) in Madrid and held visiting positions at the University of California at Berkeley, Harvard University, Boston University, MIT, and the University of Chicago.
Professor Dorn`s research connects the fields of labor economics, international trade, economic geography, political economy, and macroeconomics. In particular, he studies how globalization and technological innovation affect inequality in labor markets and society.
Professor Dorn is a Research Fellow of the Centre for Economic Policy Research (CEPR) in London, the Institute for the Study of Labor (IZA) in Bonn, and the Center for Economic Studies/ifo Institute (CESifo) in Munich. He is a member of the Council of the European Economic Association and was formerly a member of the editorial board of the Review of Economic Studies and an associate editor of the Journal of the European Economic Association.
UBS Foundation Professor of Globalization and Labor Markets
David Dorn is the UBS Foundation Professor of Globalization and Labor Markets at the University of Zurich where he also serves as director of the interdisciplinary University Research Priority Program “Equality of Opportunity”. He was previously a tenured faculty member at the Center for Monetary and Financial Studies (CEMFI) in Madrid and held visiting positions at the University of California at Berkeley, Harvard University, Boston University, MIT, and the University of Chicago.
Professor Dorn`s research connects the fields of labor economics, international trade, economic geography, political economy, and macroeconomics. In particular, he studies how globalization and technological innovation affect inequality in labor markets and society.
Professor Dorn is a Research Fellow of the Centre for Economic Policy Research (CEPR) in London, the Institute for the Study of Labor (IZA) in Bonn, and the Center for Economic Studies/ifo Institute (CESifo) in Munich. He is a member of the Council of the European Economic Association and was formerly a member of the editorial board of the Review of Economic Studies and an associate editor of the Journal of the European Economic Association.