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

Arthur Jacobs

No 475, Working Paper Research from National Bank of Belgium

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.

Keywords: automation; wealth inequality; capitalist spirit; task-based production; heterogeneous-agent (search for similar items in EconPapers)
JEL-codes: E25 J23 O33 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2025-05
New Economics Papers: this item is included in nep-lma, nep-tid and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202505-475

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