A framework for modeling future changes in inequality

Advances in automation technologies contribute to substantial structural changes in the labor market, including an ongoing decline in the fraction of the population employed in middle-income production and clerical occupations. This subproject will first describe the key empirical features of automation’s impact on the labor market. It will draw on insights from subproject (c) above, and will additionally characterize the typical career trajectories of workers whose jobs are exposed to automation. Second, based on these empirical findings, it will develop a state-of-the-art macroeconomic model which allows to study the aggregate and distributional effects of automation technologies in terms of aggregate welfare. The model will integrate key features of automation’s impact on aggregate productivity, its substitution patterns in labor markets, workers’ career choices, and governmental tools of income redistribution.
This new theoretical framework will allow to simulate how different scenarios of future technology development will affect the income distribution: What happens if the pace of automation accelerates? What happens if the scope of automation extends to additional sets of occupations? The macroeconomic framework will also provide a bridge to research module 3 on public policy. It can serve as a “laboratory” to predict the extent to which various tax, transfer and employment policies may counteract the impacts of automation technologies on inequality. Special attention is going to be devoted to policies that are currently being widely debated in Western Societies such as (i) retraining programs, (ii) tax reforms, and (iii) the introduction of a Universal Basic Income (UBI). The UBI policy in particular is tightly linked to the topic of automation, since advocates of UBI, including the proponents of a popular initiative in Switzerland in 2016, have argued that an alternative income source like UBI may become increasingly necessary as automation reduces employment opportunities. The macroeconomic framework provided here will allow to predict and discuss the economic consequences of such policies.