TY - JOUR

T1 - The Rise of the Machines

T2 - Automation, Horizontal Innovation, and Income Inequality

AU - Hémous, David

AU - Olsen, Morten Graugaard

PY - 2022/1

Y1 - 2022/1

N2 - 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.

AB - 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.

U2 - 10.1257/mac.20160164

DO - 10.1257/mac.20160164

M3 - Journal article

VL - 14

SP - 179

EP - 223

JO - American Economic Journal: Macroeconomics

JF - American Economic Journal: Macroeconomics

SN - 1945-7707

IS - 1

ER -