Labor‐eliminating technology, wage inequality, and trade protectionism

John Gilbert, Onur Koska and Reza Oladi

Journal of Public Economic Theory, 2022, vol. 24, issue 6, 1249-1265

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.

Date: 2022
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https://doi.org/10.1111/jpet.12573

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Working Paper: Labor-Eliminating Technology, Wage Inequality and Trade Protectionism (2021)
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