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Labor‐eliminating technology, wage inequality, and trade protectionism

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  • John Gilbert
  • Onur A. Koska
  • Reza Oladi

Abstract

Rapid automation in manufacturing has raised pressing questions in public and policy discourse regarding the effects of labor‐eliminating technical progress in an industry. We address the implications of a labor‐eliminating technology adopted in manufacturing for factor price changes, the skilled–unskilled wage gap, and for trade policies intended to protect workers. Using an otherwise traditional multisector general equilibrium model, we derive the conditions under which a labor‐eliminating technology will be adopted in manufacturing, and show that such a technical change will increase the rate of return on capital, and decrease both skilled and unskilled labor wages. We derive conditions under which wage inequality increases, and most importantly, show that implementing protectionist trade policies in the industry experiencing labor‐eliminating technical progress will, paradoxically, hurt the workers that the policy is meant to protect.

Suggested Citation

  • John Gilbert & Onur A. Koska & Reza Oladi, 2022. "Labor‐eliminating technology, wage inequality, and trade protectionism," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1249-1265, December.
    • Handle: RePEc:bla:jpbect:v:24:y:2022:i:6:p:1249-1265
    DOI: 10.1111/jpet.12573
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    More about this item

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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