The Role of Education in Mitigating Automation’s Effect on Wage Inequality

Abstract

While automation has renewed the debate about labor market policy responses to inequality and job losses, less attention has been given to education policy. We present a general equilibrium model and empirical evidence showing how education mitigates wage inequality resulting from a recent, worst-case expectation of technology’s ability to automate job tasks. Our model predicts that education could reduce automation’s marginal effect on the wage gap between lower- and higher-skilled labor by up to 3 percentage points. Education policies that promote automation-complementing skill formation would reduce the need for costly labor market and wealth redistribution interventions later in life.