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The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality†

The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality† AbstractWe 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. (JEL D31, E25, J24, J31, O33, O41) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality†

The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality†

American Economic Journal: Macroeconomics , Volume 14 (1) – Jan 1, 2022

Abstract

AbstractWe 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. (JEL D31, E25, J24, J31, O33, O41)

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Publisher
American Economic Association
Copyright
Copyright © 2022 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20160164
Publisher site
See Article on Publisher Site

Abstract

AbstractWe 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. (JEL D31, E25, J24, J31, O33, O41)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2022

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