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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality
Organization Unit
  • David Hémous
  • Morten Olsen
  • English
Institution University of Zurich
Series Name CEPR Discussion Paper
Number DP10244
Date 2015
Abstract Text We construct an endogenous growth model with automation (the introduction of machines which replace low-skill labor) and horizontal innovation. The economy follows three phases. First, low-skill wages are low, which induces little automation, and income inequality and labor’s share of GDP are constant. Second, as low-skill wages increase, automation increases which reduces the labor share, increases the skill premium and may decrease future low-skill wages. Finally, the economy moves toward a steady state, where low-skill wages grow but at a lower rate than high-skill wages. The model is quantitatively consistent with the US labor market experience since the 1960s.
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