Effects of automation and human investment on skill premium

Abstract

Economists and policymakers in many developed countries regard digitalization and robotic automation as drivers of increased productivity and economic growth. However, these innovations increase the wage gap (skill premium) between unskilled and information technology (IT)-skilled workers. This study examines the effects of technological innovations in automation and development of IT-skilled human resources on economic growth and skill premiums. It combines a task-based approach with a simple two-sector growth model to analyze the impact of automation on economic development and skill premiums. The study's dynamic model reproduces the changes in the skill premium and labor share in the United States since the 1970s. In addition, technological innovation in automation promotes task automation not only in the short run but also in the long run, increasing total output and skill premiums. Regarding IT education for human resource, an optimal level of IT education exists that maximizes production and minimizes the skill premium in the steady state.