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Automation, Skill Premium, and Labor Share

Author

Listed:
  • Lu Chia-Hui

    (Department of Economics, 63284 National Taipei University , 151, University Rd., San-Shia, 23741 New Taipei, Taiwan)

Abstract

By introducing automation development into a Ramsey–Cass–Koopmans model, this paper shows that the phenomenon of the skill premium will appear when firms use automation to replace labor. As automation becomes more important to production, capital share, including capital rental and profit shares, will rise, while labor share will fall. Meanwhile, the income inequality of unskilled labor relative to other income earners will increase. When households have endogenous occupational choices, the results still hold. Although the government’s policy of subsidizing people’s learning costs helps to reduce the wage gap between skilled and unskilled labor, it does not stop the decline in the labor share regardless of whether the government subsidy is financed by lump-sum taxes or the taxes on earnings generated from assets.

Suggested Citation

  • Lu Chia-Hui, 2025. "Automation, Skill Premium, and Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(2), pages 763-798.
    • Handle: RePEc:bpj:bejmac:v:25:y:2025:i:2:p:763-798:n:1012
    DOI: 10.1515/bejm-2025-0030
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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