Robots and Welfare

We develop a dynamic general equilibrium model where robots can be substituted for unskilled labor and the government uses the tax revenues for social capital investment and compensation of those who do not work. As the main novelty of the paper, we consider that social capital augments the skilled labor force that facilitates technological innovation. We show that long run growth decreases in the ratio of skilled to unskilled labor returns, indicating growth enhancing role of progressive taxation. We also observe that, when the unskilled labor employment is at least a half and at most as much as that of skilled labor long run growth is higher in case of active fiscal policy than otherwise. In the case of no fiscal policy, growth is shown to decline in the unemployment rate. Our results depart significantly from the earlier literature in that growth and equality reinforce each other