Artificial Intelligence, Income Distribution and Economic Growth

72 Pages Posted: 24 Aug 2020

See all articles by Thomas Gries

Thomas Gries

University of Paderborn

Wim Naudé

RWTH Aachen University

Abstract

The economic impact of Articial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard representative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggregate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP.

Keywords: technology, artificial intelligence, productivity, labor demand, income distribution, growth theory

JEL Classification: O47, O33, J24, E21, E25

Suggested Citation

Gries, Thomas and Naudé, Wim, Artificial Intelligence, Income Distribution and Economic Growth. IZA Discussion Paper No. 13606, Available at SSRN: https://ssrn.com/abstract=3679012

Thomas Gries (Contact Author)

University of Paderborn ( email )

Warburger St. 100
Paderborn, D-33098
Germany

Wim Naudé

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

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