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.
Hémous, David, and Morten Olsen.
"The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality."
American Economic Journal: Macroeconomics,
Personal Income, Wealth, and Their Distributions
Aggregate Factor Income Distribution
Human Capital; Skills; Occupational Choice; Labor Productivity
Wage Level and Structure; Wage Differentials
Technological Change: Choices and Consequences; Diffusion Processes
One, Two, and Multisector Growth Models