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Automation Contributed to Income Inequality in the U.S. Study Reveals

Yusuf Balogun
Yusuf Balogun
Yusuf is a law graduate and freelance journalist with a keen interest in tech reporting.

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Over the years, reports have proven that automation is responsible for more than half of the major growth in the wage gap between individuals with more education and those with less education. However, a recent research study has quantified the amount to which automation has increased income inequality in the U.S. by merely substituting technology for labor, whether it be self-checkout machines, call-center systems, assembly-line equipment, or other devices.

In the research work titled: “Tasks, Automation, and the Rise in U.S. Wage Inequality,” Daron Acemoglu, the co-author, also an Institute Professor at MIT, and Pascual Restrepo Ph.D. ’16, an assistant professor of economics at Boston University said, “If you introduce self-checkout kiosks, it’s not going to change productivity all that much.” 

However, the MIT economist further pointed out that in terms of lost wages for employees, “It’s going to have fairly large distributional effects, especially for low-skill service workers. It’s a labor-shifting device rather than a productivity-increasing device.” 

How Automation Contributed to Income Inequality in the U.S.

Acemoglu and Restrepo examined data on mechanical and software developments as well as figures from the U.S. Bureau of Economic Analysis on the usage of human labor in 49 industries between 1987 and 2016. Additionally, the researchers examined information they had previously gathered regarding using robots in the US from 1993 to 2014.

In earlier research, Acemoglu and Restrepo discovered that robots alone had replaced a sizable number of humans in the United States, helped some companies dominate their industries, and increased inequality.

Acemoglu and Restrepo conclude that there have been significant repercussions. For instance, they estimate that since 1980, automation has, when adjusted for inflation, cut the salaries of males without a high school diploma by 8.8 percent and women without a high school diploma by 2.3 percent.

The idea that automation should be seen differently from other forms of innovation, with its unique implications in workplaces, and not just as a component of a larger trend toward the use of technology in everyday life generally, is a crucial one, according to Acemoglu.

“Technological change that creates or increases industry productivity, or productivity of one type of labour, creates [those] large productivity gains but does not have huge distributional effects,” Acemoglu says. “In contrast, automation creates very large distributional effects and may not have big productivity effects.”

Identifying A New Elegant Theoretical Framework

Moreover, several institutional issues, such as the negotiating power of labor, frequently affect the rate of automation. Therefore, according to labor economists, the study adds significantly to the body of knowledge on automation, work, and inequality and should be taken into consideration in discussions of these topics in the future.

“Acemoglu and Restrepo’s paper proposes an elegant new theoretical framework for understanding the potentially complex effects of technical change on the aggregate structure of wages,” says Patrick Kline, a professor of economics at the University of California, Berkeley.

“Their empirical finding that automation has been the dominant factor driving U.S. wage dispersion since 1980 is intriguing and seems certain to reignite debate over the relative roles of technical change and labour market institutions in generating wage inequality.”

In all, Acemoglu and Restrepo mention numerous study directions in the text. This entails examining how business and labor have reacted throughout time to the rise in automation, as well as the quantitative effects of technologies that do generate jobs and the industry rivalry between businesses that embraced automation swiftly and those that did not.

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