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INTERNATIONAL MONETARY FUND
WP/24/3
IMF Working Paper
Institute for Capacity Development and Research Department
Searching for Wage Growth: Policy Responses to the “New Machine Age”
Prepared by Andrew Berg, Edward F. Buffie, Mariarosaria Comunale,
Chris Papageorgiou, Luis-Felipe Zanna
Authorized for distribution by Andrew Berg and Chris Papageorgiou
January 2024
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.
ABSTRACT: 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.
RECOMMENDED CITATION: Andrew Berg, Edward F. Buffie, Mariarosaria Comunale, Chris Papageorgiou, Luis-Felipe Zanna. 2024. “Searching for Wage Growth: Policy Responses to the “New Machine Age”“, IMF Working Paper No. 2024/3.
| JEL Classification Numbers: | E23, E25, O30, O40 |
| Keywords: | Technological change; Artificial Intelligence; robots; growth; income distribution; fiscal policy; public investment; education |
| Author’s E-Mail Address: | aberg@imf.org ebuffie@indiana.edu mcomunale@imf.org cpapageorgiou@imf.org fzanna@imf.org |
| JEL Classification Numbers: | E23, E25, O30, O40 |
| Keywords: | Technological change; Artificial Intelligence; robots; growth; income distribution; fiscal policy; public investment; education |
| Author’s E-Mail Address: | aberg@imf.org ebuffie@indiana.edu mcomunale@imf.org cpapageorgiou@imf.org fzanna@imf.org |
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WORKING PAPERS
Searching for Wage Growth: Policy Responses to the “New Machine Age”
Prepared by Andrew Berg, Edward F. Buffie, Mariarosaria Comunale, Chris Papageorgiou, Luis-Felipe Zanna1
The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Edward F. Buffie is at the Department of Economics, Indiana University. We thank Paul Gaggl for his guidance on codes and replication. We thank Jiemin Ren, John Ralyea, and Sanghamitra Warrier Mukherjee for comments.