Explain how technology transfer and outsourcing can widen income disparities within a country.

• A. They always reduce inequalities by spreading technology evenly.
• B. They raise productivity and wages for skilled workers, while automation and outsourcing can reduce demand for low-skilled labor, increasing wage gaps.
• C. They have no impact on income distribution.
• D. They cause high-skilled workers to lose wages while low-skilled gain.

Answer: (B)

Technology transfer and outsourcing change the demand for different kinds of labor. When a country adopts new technologies, the tasks that are created or strengthened often require more advanced skills to design, install, operate, and maintain the systems. That boosts productivity and tends to raise wages for skilled workers who can work with the new tech. At the same time, automation and outsourcing can reduce the need for low-skilled, routine, or easily offshored work, leading to slower wage growth or job losses for those workers. Over time, this shift in demand increases the income gap between skilled and unskilled workers. The effect is especially pronounced in economies with a dual labor market or limited retraining opportunities, where educated workers in growing sectors gain while others face weaker prospects. Policy efforts that emphasize training and support can help mitigate the gap, but the core mechanism is the movement of demand toward higher-skilled labor and away from lower-skilled labor driven by technology and outsourcing.