It's good to see Fed Governor Ben Bernanke talk today about The Level and Distribution of Economic Well-Being. Not another contribution to the 'happiness debate' - the talk is really about inequality. In this excerpt he propounds the standard skill-biased technical change thesis:
..understanding the sources of the long-term tendency toward greater inequality remains a major challenge for economists and policymakers. A key observation is that, over the past few decades, the real wages of workers with more years of formal education have increased more quickly than those of workers with fewer years of formal education. ...To a significant extent, to explain increasing inequality we must explain why the economic return to education and to the development of skills more generally has continued to rise.
Economists have hypothesized that technological advances, such as improvements in information and communications technologies, have raised the productivity of high-skilled workers much more than that of low-skilled workers. ...If new technologies tend to increase the productivity of highly skilled workers relatively more than that of less-skilled workers--a phenomenon that economists have dubbed "skill-biased technical change"--then market forces will tend to cause the real wages of skilled workers to increase relatively faster. Considerable evidence supports the view that worker skills and advanced technology are complementary.
Buit it doesn't explain all recent trends:
Although skill-biased technical change appears to be an important cause of the rise in earnings inequality, it does not provide a complete explanation for that trend. The hypothesis cannot explain, for example, why the sharp rise in investment in information technology in the 1990s was not accompanied by a higher rate of increase in wage inequality. Nor can it explain why the wages of workers in the middle of the distribution have grown more slowly in recent years than those of workers at the lower end of the distribution, even though, of the two groups, workers in the middle of the distribution are typically the better educated (Autor, Katz, and Kearney, 2006; Autor, Levy, and Murnane, 2003).
As for the policy conclusions, you can probably guess those:
...the challenge for policy is not to eliminate inequality per se but rather to spread economic opportunity as widely as possible. Policies that focus on education, job training, and skills and that facilitate job search and job mobility seem to me to be a promising means for moving toward that goal. By increasing opportunity and capability, we help individuals and families while strengthening the nation's economy as well.