## 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

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### 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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_Source: https://www.imf.org/en/publications/wp/issues/2024/01/12/searching-for-wage-growth-policy-responses-to-the-new-machine-age-542873_