Robot revolution and human capital accumulation: implications for growth and labour income

We develop a model of endogenous growth with automation to study the impact of industrial robots on growth and labour income. We incorporate human capital accumulation into that framework to examine the role of human capital in sustaining growth without displacing low-skilled labour. While automation replaces low-skilled labour with industrial robots in conducting routine tasks, horizontal innovation creates new varieties in which low-skilled labour has an employment advantage. Labour-augmenting technology takes place to improve productivity of low-skilled labour. As such, those latter types of innovation help counterbalance the adverse effect of automation on low-skilled labour. Human capital, the essential production factor that takes part in every economic activity, including conducting non-routine tasks, accumulates over time through education and training. We show that there exists a long-run equilibrium at which either robots or low-skilled workers are employed, together with human capital, to produce varieties. In the fully endogenous model, final output grows at the rate of human capital accumulation. An improvement in the quality of education and training leads to an acceleration of both automation and variety expansion, but not human capital growth. Our numerical exercise indicates that a permanent increase in automation entails a permanent impact on the range of automated varieties, long-run output level and human capital wage. The shock lowers long-run growth and low-skilled workers’ wage and their effective income share. However, it has no effect on the effective income share of human capital.