Commentary: Causes of Changing Earnings Inequality

In the first half of this stimulating paper, Dennis Snower gives us a review of the existing academic literature on inequality. His bottom line is that some of the inequality appears to derive from globalization, deindustrialization, and technological change, but a significant degree of inequality and several other features of wage behavior remain unexplained. Snower then suggests an answer, which could provide the explanation. He argues that an organizational revolution, the shift from mass production to mass customization, is the primary source of growing inequality. This revolution increases the attractiveness of versatility, skills, and education. The result is higher productivity and returns to the skilled, and lower productivity and returns to the less skilled.