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The lost race against the machine: Automation, education, and inequality in an R&D-based growth model

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  • Prettner, Klaus
  • Strulik, Holger

Abstract

We analyze the effects of automation and education on economic growth and inequality in an R&D-based growth model with two types of labor: high-skilled labor that is complementary to machines and low-skilled labor that is a substitute for machines. The model predicts that innovation-driven growth leads to increasing automation, an increasing skill premium, an increasing population share of college graduates, increasing income and wealth inequality, and a declining labor share. In contrast to conventional wisdom, our theory predicts that faster economic growth promotes inequality. Because education and technology are endogenous, redistribution to low-skilled individuals may actually not improve disposable low-skilled income, irrespective of whether it is financed by taxes on labor income or machine input in production. We extend the model by fair wage concerns and show how automation implies involuntary low-skilled unemployment.

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  • Prettner, Klaus & Strulik, Holger, 2017. "The lost race against the machine: Automation, education, and inequality in an R&D-based growth model," Center for European, Governance and Economic Development Research Discussion Papers 329, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:329
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    Cited by:

    1. Naudé, Wim, 2019. "The Race against the Robots and the Fallacy of the Giant Cheesecake: Immediate and Imagined Impacts of Artificial Intelligence," IZA Discussion Papers 12218, Institute of Labor Economics (IZA).
    2. Prettner, Klaus & Strulik, Holger, 2017. "The lost race against the machine: Automation, education and inequality in an R&D-based growth model," Hohenheim Discussion Papers in Business, Economics and Social Sciences 08-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    3. repec:eee:reveco:v:59:y:2019:i:c:p:500-509 is not listed on IDEAS
    4. Lankisch, Clemens & Prettner, Klaus & Prskawetz, Alexia, 2017. "Robots and the skill premium: An automation-based explanation of wage inequality," Hohenheim Discussion Papers in Business, Economics and Social Sciences 29-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    5. Prettner, Klaus & Strulik, Holger, 2019. "Innovation, Automation, and Inequality: Policy Challenges in the Race against the Machine," GLO Discussion Paper Series 320, Global Labor Organization (GLO).
    6. Martin Labaj & Daniel Dujava, 2019. "Economic growth and convergence during the transition to production using automation capital," Department of Economic Policy Working Paper Series 017, Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava.
    7. Cords, Dario & Prettner, Klaus, 2018. "Technological unemployment revisited: Automation in a search and matching framework," Hohenheim Discussion Papers in Business, Economics and Social Sciences 19-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    8. Abeliansky, Ana & Prettner, Klaus, 2017. "Automation and demographic change," Center for European, Governance and Economic Development Research Discussion Papers 310, University of Goettingen, Department of Economics.
    9. Guimarães, Luis & Gil, Pedro, 2019. "Explaining the labor share: automation vs labor market institutions," MPRA Paper 92062, University Library of Munich, Germany.
    10. Krenz, Astrid & Prettner, Klaus & Strulik, Holger, 2018. "Robots, reshoring, and the lot of low-skilled workers," Center for European, Governance and Economic Development Research Discussion Papers 351, University of Goettingen, Department of Economics.
    11. Bloom, David E. & McKenna, Matthew J. & Prettner, Klaus, 2018. "Demography, Unemployment, Automation, and Digitalization: Implications for the Creation of (Decent) Jobs, 2010–2030," IZA Discussion Papers 11739, Institute of Labor Economics (IZA).
    12. Gasteiger, Emanuel & Prettner, Klaus, 2017. "A note on automation, stagnation, and the implications of a robot tax," Discussion Papers 2017/17, Free University Berlin, School of Business & Economics.
    13. Geiger, Niels & Prettner, Klaus & Schwarzer, Johannes A., 2018. "Automatisierung, Wachstum und Ungleichheit," Hohenheim Discussion Papers in Business, Economics and Social Sciences 13-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    14. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2018. "Should the Government Subsidize Innovation or Automation?," MPRA Paper 88276, University Library of Munich, Germany.

    More about this item

    Keywords

    Automation; R&D-Based Growth; Inequality; Wealth Concentration; Unemployment; Redistribution;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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