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CEU Economic Seminar Series: A Technological Impact Assessment on Factor Markets and Inequality

Wednesday, April 6, 2022, 11:15 am – 12:30 pm


I develop an economic framework to evaluate the impact of technological advances on labor demand and inequality. How an innovation affects the different segments of the labor market is decomposed into five channels: The first three are (i) a direct channel that captures how the innovation changes factor inputs for given output; (ii) a demand channel that reflects how pricing decisions affect product demand, the profit share, and output; and (iii) a factor reallocation effect that captures how redundant factors are redeployed in the economy. When supply chain effects are significant, (iv) a vertical channel traces the effects on factor demand along a firm's value chain. Moreover, when there are significant within-industry demand effects, (v) a horizontal channel analyzes how factor demand among competitors and providers of complements is affected. The framework informs companies, policymakers, and civil society about what types of innovations and policy environments are desirable to deliver shared prosperity. In a sample application, I illustrate how an automation tool in the fast food industry would reduce the wage bill of unskilled workers by about $200m.