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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.

Suggested Citation

  • Prettner, Klaus & Strulik, Holger, 2017. "The lost race against the machine: Automation, education, and inequality in an R&D-based growth model," University of Göttingen Working Papers in Economics 329, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:329
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    More about this item

    Keywords

    Automation; R&D-Based Growth; Inequality; Wealth Concentration; Unemployment; Redistribution;
    All these keywords.

    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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