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The rise of the machines: automation, horizontal Innovation, and income Inequality


Hémous, David; Olsen, Morten (2022). The rise of the machines: automation, horizontal Innovation, and income Inequality. American Economic Journal: Macroeconomics, 14(1):179-223.

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.

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.

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30 citations in Web of Science®
31 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Economics, Econometrics and Finance
Uncontrolled Keywords:General economics, econometrics and finance
Language:English
Date:1 January 2022
Deposited On:27 Jan 2023 10:50
Last Modified:30 Jan 2024 02:41
Publisher:American Economic Association
ISSN:1945-7715
OA Status:Green
Publisher DOI:https://doi.org/10.1257/mac.20160164
  • Content: Published Version
  • Content: Supplemental Material
  • Description: Online Appendix