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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality |
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| 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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