Uneven Growth: Automation’s Impact on Income and Wealth Inequality

47 Pages Posted: 9 Mar 2021

See all articles by Benjamin Moll

Benjamin Moll

London School of Economics & Political Science (LSE)

Lukasz Rachel

Bank of England

Pascual Restrepo

Boston University - Department of Economics

Date Written: March 5, 2021

Abstract

The benefits of new technologies accrue not only to high-skilled labour but also to owners of capital in the form of higher capital incomes. This increases inequality. To make this argument, we develop a tractable theory that links technology to the personal income and wealth distributions – and not just that of wages – and use it to study the distributional effects of automation. We isolate a new theoretical mechanism: automation increases inequality via returns to wealth. The flip side of such return movements is that automation is more likely to lead to stagnant wages and therefore stagnant incomes at the bottom of the distribution. We use a multi-asset model extension to confront differing empirical trends in returns to productive and safe assets and show that the relevant return measures have increased over time. Automation accounts for part of the observed trends in income and wealth inequality and macroeconomic aggregates.

Keywords: Inequality, wealth, capital, returns, wages, labor share, technology, automation

Suggested Citation

Moll, Benjamin and Rachel, Lukasz and Restrepo, Pascual, Uneven Growth: Automation’s Impact on Income and Wealth Inequality (March 5, 2021). Bank of England Working Paper No. 913, Available at SSRN: https://ssrn.com/abstract=3801089 or http://dx.doi.org/10.2139/ssrn.3801089

Benjamin Moll (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Lukasz Rachel

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Pascual Restrepo

Boston University - Department of Economics ( email )

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