Robots, factor intensities, and wage inequality

ABSTRACT

This paper investigates how robots affect wage inequality. We consider four cases, i.e. robots replacing skilled labor, robots replacing unskilled labor, robots replacing both skilled and unskilled labor, and robots serving as complements to human labor. Different from the existing literature on artificial intelligence and automation, we find that in all the four cases an increase in the importance of robots can increase or decrease wage inequality under different conditions. When robots are incorporated into the framework of wage inequality, factor intensities should be taken seriously.

KEYWORDS:

• Artificial intelligence
• robot
• factor intensity
• wage inequality

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1. Robots are also called smart machines by some scholars (e.g. Benzell et al. 2017).

2. Lankisch, Prettner, and Prskawetz (2017) focus on the case in which unskilled workers are easier to automate than skilled workers, which is greatly different from the dichotomy of low-skill automation and high-skill automation in Acemoglu and Restrepo (2018a).

3. Here, it should be noted that automation technology in Zhang (2019) refers to the technology in the robot manufacturing sector, and it is essentially different from robots. This paper focuses on the impact of robots, especially from the perspective of the importance of robots. In the real world, the importance of robots is increasing, and the effect of such an increase is the major concern of this paper.

4. Such a treatment is similar to that in Korinek and Stiglitz (2017a), who hold that labor consists of the sum of human and robotic labor.

5. There are different ways to model robots or automation. Acemoglu and Restrepo (2018c) point out that Kotlikoff and Sachs (2012), Graetz and Michaels (2015), and Nordhaus (2015) model robots or automation as capital-augmenting technological change, and that Bessen (2017) models automation as labor-augmenting technological change. CES production functions and the production of robots in this paper can combine the above-mentioned two ways. The relationship between robots and human labor is determined by the elasticities of substitution and the relationship between robots and capital is determined by the role of capital in the production of robots. Additionally, such a setting makes the analysis tractable. Then, we can focus our attention on the increase in the importance of robots. Of course, there are some scholars exploring the role of technical change on wages, unemployment and wage inequality, but not in the sense of robots or automation (see e.g. Juhn, Murphy, and Pierce 1993; Autor, Katz, and Krueger 1998, 2003; Berman, Bound, and Machin 1998; Acemoglu 2002; Oladi and Beladi 2008; Beladi and Oladi 2014; Pi and Zhang 2018a).

6. There is another case where ${\beta }_{SX}$ and ${\beta }_{UY}$ keep constant and ${\beta }_{Rj}$ increases. Such a case is equivalent to a technical progress of robots. The result in such a case is also in accordance with our main results.

7. The results are complex and we only report the worthwhile part.

8. We thank an Associate Editor for reminding us of this situation.