The Lost Race Against the Machine: Automation, Education, and Inequality in an R&D-Based Growth Model

cege Discussion Papers No. 329, November 2017

35 Pages Posted: 6 Dec 2017

See all articles by Klaus Prettner

Klaus Prettner

Institute of Economics; University of Goettingen (Göttingen); University of Vienna - Austrian Academy of Sciences; Vienna University of Technology - Institute for Mathematical Methods in Economics

Holger Strulik

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences

Date Written: December 1, 2017

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.

Keywords: Automation, R&D-Based Growth, Inequality, Wealth Concentration, Unemployment, Redistribution

JEL Classification: E23, E25, O31, O33, O40

Suggested Citation

Prettner, Klaus and Strulik, Holger, The Lost Race Against the Machine: Automation, Education, and Inequality in an R&D-Based Growth Model (December 1, 2017). cege Discussion Papers No. 329, November 2017, Available at SSRN: https://ssrn.com/abstract=3080967 or http://dx.doi.org/10.2139/ssrn.3080967

Klaus Prettner (Contact Author)

Institute of Economics ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

University of Vienna - Austrian Academy of Sciences ( email )

Sonnenfelsgasse 19/2
Wien, Osterreich A-1010
Austria

Vienna University of Technology - Institute for Mathematical Methods in Economics ( email )

Argentinierstr. 8
Vienna, 1040
Austria

Holger Strulik

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences ( email )

Germany

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