The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality
American Economic Journal: Macroeconomics
vol. 14,
no. 1, January 2022
(pp. 179-223)
(Complimentary)
Abstract
We build an endogenous growth model with automation (the replacement of low-skill workers with machines) and horizontal innovation (the creation of new products). Over time, the share of automation innovations endogenously increases through an increase in low-skill wages, leading to an increase in the skill premium and a decline in the labor share. We calibrate the model to the US economy and show that it quantitatively replicates the paths of the skill premium, the labor share, and labor productivity. Our model offers a new perspective on recent trends in the income distribution by showing that they can be explained endogenously.Citation
Hémous, David, and Morten Olsen. 2022. "The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality." American Economic Journal: Macroeconomics, 14 (1): 179-223. DOI: 10.1257/mac.20160164Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- E25 Aggregate Factor Income Distribution
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- O33 Technological Change: Choices and Consequences; Diffusion Processes
- O41 One, Two, and Multisector Growth Models
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