The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality
-
David Hémous
-
Morten Olsen
- American Economic Journal: Macroeconomics (Forthcoming)
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.
Forthcoming Article Downloads
