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Searching for Wage Growth: Policy Responses to the “New Machine Age”
Author:
Andrew Berg
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Edward F Buffie
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Mariarosaria Comunale
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Chris Papageorgiou
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Luis-Felipe Zanna
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Series:
IMF Working Papers
Volume/Issue:
Volume 2024: Issue 003
Language:
English
Publication Date:
12 Jan 2024
DOI:
https://doi.org/10.5089/9798400263682.001
ISBN:
9798400263682
ISSN:
1018-5941
Pages:
81
Keywords:
Technological change; Artificial Intelligence; robots; growth; income distribution; fiscal policy; public investment; education; corporate tax tax cut; way policy; infrastructure investment; IMF working paper No. 2024/3; ICT capital; Robotics; Skilled labor; Unskilled labor; Wages; Europe; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The current wave of technological revolution is changing the way policies work. This paper examines the growth and distributional implications of three policies when “robot'' capital (a broad definition of robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos) is introduced in a neoclassical growth model. 1) cuts to the corporate tax rate; 2) increases in education spending; and 3) increases in infrastructure investment. We find that incorporating “robot'' capital into the model does make a big difference to policy outcomes: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the advantages of investment in infrastructure, and especially in education, are bigger. Based on our calibrations grounded on new empirical estimates, infrastructure investment and corporate tax cuts dominate investment in education in a "traditional" economy. However, in an economy with “robots” the infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all. The specific results, of course, may depend on the exact modeling of the technological change, but our main results remain valid and can provide more accurate welfare rankings.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund