Page - (000061) - in Disrupted Development and the Future of Inequality in the Age of Automation

54 L. SCHLOGL AND A. SUMNER labor-saving production function where labor drops out entirely as a fac- tor of production. In that case, output would be produced solely by non- human production factors. Solow himself was skeptical of such a scenario. In a book on unem- ployment in the United States written in the 1960s, he noted that “rather spectacular scientific and engineering achievements” have led many “to the conclusion that there is a kind of revolution in progress, connected with the advance of automation” (Solow, 1964, p. 7). Yet, he doubted “that the clichés about automation and structural unem- ployment are very productive in analyzing the problem or bringing the remedy any closer” (ibid., p. 40) and he was particularly skeptical that automation calls for specific policy responses or a reorganization of the economic framework. Of course, as noted above, not all labor is equally easy to substi- tute with machines. The dominant view has been that technology is skills-complementing or skills-biased (see Tinbergen, 1974, 1975). Empirically, models predicting a “skills premium” and rising market ine- quality due to automation are pervasive (see Acemoglu & Autor, 2011; Autor, Katz, & Kearney, 2004; Goldin & Katz, 2007; Katz & Autor, 1999; Katz & Murphy, 2013). Others have argued, though, that techno- logical change does not necessarily have to be skills-biased and inequali- ty-increasing in every case (see Roine & Waldenström, 2014). The neoclassical growth model is a one-sector model and thus indif- ferent to the role of structural change in driving growth as Lewis (1954) intended, in his vision of economic development as a transfer of labor from a low-productivity, “traditional” sector to a higher productivity, “modern” sector. Herrendorf, Rogerson, and Valentinyi (2014) argue empirically that the sectoral composition of economic activity is key to understanding economic development. McMillan and Rodrik (2011, p. 1), also, in taking sectoral and aggregate labor productivity data empirically show that the transfer of labor and other inputs to higher productive activity is a driver of economic development, as Lewis hypothesized. However, they go on to note that structural change can in fact be growth-enhancing or growth-reducing, depending on the real- location of that labor.2 Assuming technological labor-substitution, what can we say about potential implications for structural economic transfor- mation, i.e. the reallocation of economic resources across sectors with different levels of productivity?