Searching for Wage Growth: Policy Responses to the “New Machine Age”

By Andrew Berg, Edward F Buffie, Mariarosaria Comunale, Chris Papageorgiou, Luis-Felipe Zanna

January 12, 2024

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Andrew Berg, Edward F Buffie, Mariarosaria Comunale, Chris Papageorgiou, and Luis-Felipe Zanna. Searching for Wage Growth: Policy Responses to the “New Machine Age”, (USA: International Monetary Fund, 2024) accessed December 22, 2024

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.

Summary

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.

Subject: Labor, Robotics, Skilled labor, Technology, Unskilled labor, Wages

Keywords: Artificial Intelligence, Corporate tax tax cut, Education, Europe, Fiscal policy, Global, Growth, ICT capital, IMF working paper No. 2024/3, Income distribution, Infrastructure investment, Public investment, Robotics, Robots, Skilled labor, Technological change, Unskilled labor, Wages, Way policy

Publication Details

Pages:

81
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/003
Stock No:

WPIEA2024003
ISBN:

9798400263682
ISSN:

1018-5941

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