The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality

David Hemous and Morten Olsen

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 1, 179-223

Abstract: We build an endogenous growth model with automation (the replacement of low-skill workers with machines) and horizontal innovation (the creation of new products). Over time, the share of automation innovations endogenously increases through an increase in low-skill wages, leading to an increase in the skill premium and a decline in the labor share. We calibrate the model to the US economy and show that it quantitatively replicates the paths of the skill premium, the labor share, and labor productivity. Our model offers a new perspective on recent trends in the income distribution by showing that they can be explained endogenously.

JEL-codes: D31 E25 J24 J31 O33 O41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (57)

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Related works:
Working Paper: The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality (2015)
Working Paper: The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality (2014)
Working Paper: The Rise of the Machines: Automation, Horizontal Innovation and Income Inequality (2014)
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DOI: 10.1257/mac.20160164

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