Innovation, Automation, and Inequality: Policy Challenges in the Race against the Machine

Arbeitspapier

We analyze the effects of R&D-driven automation on economic growth, education, and inequality when high-skilled workers are complements to machines and low-skilled workers are substitutes for machines. The model predicts that innovation-driven growth leads to an increasing population share of college graduates, increasing income and wealth inequality, and a declining labor share. We use the model to analyze the effects of redistribution. We show that it is difficult to improve income of low-skilled individuals as long as both technology and education are endogenous. This is true irrespective of whether redistribution is financed by progressive wage taxation or by a robot tax. Only when higher education is stationary, redistribution unambiguously benefits the poor. We show that education subsidies affect the economy differently depending on their mode of funding and that they may actually reduce education. Finally, we extend the model by fair wage concerns and show how automation could induce involuntary low-skilled unemployment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: GLO Discussion Paper ; No. 320

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Production ; Aggregate Factor Income Distribution ; Innovation and Invention: Processes and Incentives ; Technological Change: Choices and Consequences; Diffusion Processes ; Economic Growth and Aggregate Productivity: General
• Subject: Automation ; Innovation-Driven Growth ; Inequality ; Wealth Concentration ; Unemployment ; Policy Responses

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Prettner, Klaus ; Strulik, Holger
• Event: Veröffentlichung
• (who): Global Labor Organization (GLO)
• (where): Maastricht
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/191983
• Last update: 10.03.2025, 11:44 AM CET