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The rise of the 1% and the fall of the labor share: an automation-driven doom loop?

Author

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  • Arthur Jacobs

    (Ghent University)

Abstract

I evaluate the link between automation and the rise in top income concentration when inequality matters for macro. The novel mechanism is that automation redistributes income towards high-wealth households who save more, which lowers the interest rate and incites firms to automate more. To operationalize this, I build a tractable heterogeneous-agent model (1) with wealth in the utility function as a luxury good, and (2) a firm-side choice on automation. I find that introducing realistic savings rate heterogeneity largely eliminates the need for ad hoc technology shifts. Rather, automation is the outcome of increased top income concentration, not just its driver.

Suggested Citation

  • Arthur Jacobs, 2025. "The rise of the 1% and the fall of the labor share: an automation-driven doom loop?," Working Paper Research 475, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202505-475
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    File URL: https://www.nbb.be/en/articles/rise-1-and-fall-labor-share-automation-driven-doom-loop
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    More about this item

    Keywords

    automation; wealth inequality; capitalist spirit; task-based production; heterogeneous-agent;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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