Technology, Inequality, and Aggregate Demand

19 Pages Posted: 2 Mar 2019 Last revised: 16 May 2019

See all articles by Shinnosuke Kikuchi

Shinnosuke Kikuchi

Massachusetts Institute of Technology

Date Written: February 12, 2019

Abstract

What is the macroeconomic implications of inequality caused by technological progress? Using a standard over-lapping-generations model with skill heterogeneity and the Roy-type occupational choice, this paper examines how routine-biased technological change impacts income distribution and aggregate demand. It finds that the relatively rapid labor productivity increase in the manufacturing sector compared to the service sector can explain job and wage polarization and about two-thirds of the decline in the real interest rate in the US from the 1980's to 2010's. It also documents the potential contribution of that biased technological change to the stagnation of aggregate output.

Keywords: Routine-Biased Technological Change, Income Inequality, Aggregate Demand, Secular Stagnation

JEL Classification: E21, E24, J24, J62, O33

Suggested Citation

Kikuchi, Shinnosuke, Technology, Inequality, and Aggregate Demand (February 12, 2019). Available at SSRN: https://ssrn.com/abstract=3332993 or http://dx.doi.org/10.2139/ssrn.3332993

Shinnosuke Kikuchi (Contact Author)

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