"Tech Giants' Monopoly Worsens Inequality... Innovation and Deregulation Are the Answers"

Korean Female Economist Identifies Causes of Income Inequality, Wins Prestigious US Academic Award

Jihee Kim, Professor, Department of Management of Technology, Korea Advanced Institute of Science and Technology (KAIST).

[Asia Economy Reporter Kim Bong-su] A Korean female economist has been awarded a prestigious academic prize for identifying the causes of the sharp worsening of income inequality in the United States, the United Kingdom, and other countries since the 1980s. She was recognized for logically explaining, based on data, that the globalization and ICT development, which increase the market dominance of specific large corporations such as Apple and Google, reinforce income inequality, and that innovation leading to the market entry of new companies and deregulation are the shortcuts to resolving it.

On the 14th, the Korea Advanced Institute of Science and Technology (KAIST) announced that Professor Kim Ji-hee of the Department of Technology Management was selected as the recipient of this year’s Robert E. Lucas Jr. Prize. Professor Kim received the award for a paper published in October 2018 in the prestigious American academic journal, the Journal of Political Economy (JPE), co-authored with Professor Charles Jones of Stanford University.

Professor Kim’s paper, titled “A Schumpeterian Model of Top Income Inequality,” presents a theoretical model explaining changes in income inequality demonstrated by French economist Piketty’s data. In particular, it empirically analyzes why income inequality sharply increased in countries like the United States and the United Kingdom since the 1980s.

Professor Kim viewed that the efforts of entrepreneurs who successfully enter the market to grow their businesses strengthen monopolies and increase inequality. Conversely, the entry of new entrepreneurs through creative destruction reduces inequality. Her theoretical model shows that the interaction between these two forces determines the income distribution, which follows a Pareto distribution.

In other words, globalization and IT technological advancements, which strengthen monopolies of specific companies such as Apple, Google, and Amazon, lead to increased inequality, while innovation policies and deregulation that induce the entry of new entrepreneurs can lead to decreased inequality.

In her paper, Professor Kim applied U.S. income data to the theoretical model and empirically demonstrated how much each of the two forces contributed to the increase in income inequality since the 1980s. The increase in income inequality in the 1980s was mainly due to the accelerated growth of already entered companies, while since the 1990s, the slowdown of creative innovation has been the major cause of rising income inequality.

The University of Chicago, which publishes the JPE, evaluated Professor Kim’s paper as “presenting a model that can serve as a foundation for understanding the interaction between economic growth and inequality.”

As a follow-up study, Professor Kim is developing an economic theoretical model that can analyze the impact of institutional changes such as income tax rates and salary negotiations on income inequality.

The Lucas Prize was established in 2016 to honor the achievements of Professor Robert Lucas Jr., who won the Nobel Prize in Economics in 1995. It is awarded to the most interesting paper published in the JPE, regarded as the top journal in economics, among papers published in the past two years.

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