The McKinsey Global Institute has noticed inequality in the world, and is concerned about automation making it worse. Part of their solution is – this is a bit shocking – “government taxes and transfers”. It appears they are talking about lower taxes and higher transfers, which they acknowledge might not be “sustainable”.

If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.

The encouraging news is that it is possible to reduce the number of people not advancing. Labor-market practices can make a difference, as can government taxes and transfers—although the latter may not be sustainable at a time when many governments have high debt levels. For example, in Sweden, where the government intervened to preserve jobs during the global downturn, market incomes fell or were flat for only 20 percent of households, while disposable income advanced for almost everyone. In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households. Efforts such as these—along with additional measures such as encouraging business leaders to adopt long-term thinking—can make a real difference. The trend of flat and falling real incomes merits bold measures on the part of government and business alike.