Searching for Wage Growth: Policy Responses to the “New Machine Age”
IMF Working Papers, January 12, 2024
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Bibliographic details
- Authors: Andrew Berg, Edward F Buffie, Mariarosaria Comunale, Chris Papageorgiou, Luis-Felipe Zanna
- Published: January 12, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400263682.001
Overview
- The paper examines the growth and distributional implications of three policies when “robot'' capital is introduced in a neoclassical growth model. “Robot'' capital is defined broadly as robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos.
- The three policies analyzed are: 1) cuts to the corporate tax rate; 2) increases in education spending; and 3) increases in infrastructure investment.
- The analysis highlights how the current wave of technological revolution changes policy outcomes and welfare rankings.
Model and Calibration
- A neoclassical growth model is augmented with “robot'' capital to study interactions between automation and policy.
- Calibrations are grounded on new empirical estimates (details provided in the paper).
- The paper compares outcomes in a "traditional" economy versus an economy with “robots”.
Key Findings
- Incorporating “robot'' capital into the model materially changes policy outcomes.
- Trickle-down effects of corporate tax cuts on unskilled wages are attenuated in the presence of “robots”.
- Investment in infrastructure and education produce larger advantages when “robot'' capital is present, relative to the traditional setting.
- Welfare and policy rankings differ between the traditional economy and the economy with “robots”:
- In a "traditional" economy: infrastructure investment and corporate tax cuts dominate investment in education.
- In an economy with “robots”: infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all.
- The specific quantitative results depend on exact modeling choices for technological change, but the main qualitative results remain valid and provide more accurate welfare rankings.
Policy Implications
- Policymakers should account for the presence and scope of “robot'' capital (AI, ICT, networks, sensors, etc.) when designing fiscal and public-investment policies.
- Reliance on corporate tax cuts as a trickle-down mechanism to raise unskilled wages is less effective when automation is pervasive.
- Public investment—particularly in infrastructure and education—becomes relatively more valuable in economies with significant “robot'' capital, with education investment often yielding the highest welfare gains in the automated economy.
IMF Working Paper No. 2024/003: "Searching for Wage Growth: Policy Responses to the “New Machine Age”" by Andrew Berg, Edward F Buffie, Mariarosaria Comunale, Chris Papageorgiou, and Luis-Felipe Zanna, January 12, 2024.
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- Working Paper