The distributional effects of automation
In this paper, Moll et al. developed a tractable framework to study the effects of technology on income inequality. In particular, their framework allows them to study the impact of technology on factor prices and the personal income
and wealth distributions and not just that of wages. They identify a new channel through which technology affects inequality: the benefits of new technologies accrue not only to high-skilled labor but also to owners of capital in the form of higher capital incomes and returns.
Their model assumes: a) that households differ in their skills and household wealth accumulation is subject to dissipation shocks which leave them with zero assets and only their labor income, thereby capturing the hazards of accumulating and maintaining a fortune; and b) that the long-run capital supply is upward-sloping. Automation increases the demand for capital relative to labor and, because supply is upward-sloping, this demand shift permanently increases returns to wealth. Their results:
- Automation directly increases wealth and income inequality, because households receive a higher return on their assets and grow their fortunes more rapidly;
- Wages are more likely to stagnate because some of the productivity gains from automation do not accrue to workers but rather to owners of capital in the form of a higher return to their wealth.
Automation’s Impact on Income and Wealth Inequality
Authors: Benjamin Moll, Lukasz Rachel, Pascual Restrepo
From: LSE, Princeton University, Boston University
Can fiscal policies reduce the automation-induced inequality?
Fiscal policy instruments can reduce inequality, generally at the cost of some foregone growth in the long term. In this commentary, Gueorguiev and Nakatani look at the growth-inequality tradeoffs through the prism of three tax-and-redistribute packages: a tax on capital income, a tax on excess corporate profits (the markup tax), and a tax on robots. All packages involve an increase in a particular tax, with the proceeds used for transfers to the low-skilled workers. A fourth package directly cuts the wage tax for the unskilled workers. They find:
- In the short term, three policy packages (excluding the capital income tax) deliver modest output-per-capita gains and a sizable reduction in inequality. However, as time passes, capital accumulation and productivity begin to lag;
- The robot tax is the most powerful tool to reduce inequality, as it slows down the replacement of low-skilled labor by robots, but the flip side of this is slower accumulation of highly productive robots and forgone output;
- A tax cut of wages of unskilled workers both reduces inequality and raises output in the short run, while the larger share of unskilled labor (less productive than robots) weighs on the productivity in the long run.
Sharing the Gains of Automation: The Role of Fiscal Policy
By: Nikolay Gueorguiev, Ryota Nakatani – IMF
