The Unassuming Economist

From a new IMF working paper by Andrew Berg, Edward Buffie, and Luis-Felipe Zanna:

“Advances in artificial intelligence and robotics may be leading to a new industrial revolution. This paper presents a model with the minimum necessary features to analyze the implications for inequality and output. Two assumptions are key: “robot” capital is distinct from traditional capital in its degree of substitutability with human labor; and only capitalists and skilled workers save. We analyze a range of variants that reflect widely different views of how automation may transform the labor market. Our main results are surprisingly robust: automation is good for growth and bad for equality; in the benchmark model real wages fall in the short run and eventually rise, but “eventually” can easily take generations.”

“Figure 3 plots the transition paths [when robots and labor are perfect vs. imperfect substitutes, when all other parameters take their base case bales.] Perfect substitution of robot for human labor delivers perpetual growth. But the rich become richer and the poor poorer with every passing year. In the long run, the real wage decreases 13.4% while capitalists’ income rises without limit.”