Occupational Tasks, Automation, and Economic Growth: A Modeling and Simulation Approach

TL;DR

This paper develops an analytical task-based model to understand how automation and AI influence economic growth, wages, and labor shares, highlighting the potential for policy interventions to independently affect wages and labor shares.

Contribution

It introduces a novel endogenous framework integrating knowledge accumulation with technological frictions, advancing understanding of automation's economic impacts.

Findings

Wages and labor shares can be influenced independently by different policy levers.

Labor share is sensitive to capital-labor ratio.

Wages increase with larger knowledge stocks.

Abstract

The Fourth Industrial Revolution commonly refers to the accelerating technological transformation that has been taking place in the 21st century. Economic growth theories which treat the accumulation of knowledge and its effect on production endogenously remain relevant, yet they have been evolving to explain how the current wave of advancements in automation and artificial intelligence (AI) technology will affect productivity and different occupations. The work contributes to current economic discourse by developing an analytical task-based framework that endogenously integrates knowledge accumulation with frictions that describe technological lock-in and the burden of knowledge generation and validation. The interaction between production (or automation) and growth (or knowledge accumulation) is also described explicitly. To study how automation and AI shape economic outcomes, I rely on high-throughput calculations of the developed model. The effect of the model's structural parameters on key variables such as the production output, wages, and labor shares of output is quantified, and possible intervention strategies are briefly discussed. An important result is that wages and labor shares are not directly linked, instead they can be influenced independently through distinct policy levers. Generally, labor share depends sensitively on capital-labor ratio, while wages respond positively to larger knowledge stocks.