Closing the Income Gap Opens the Door to Robots

Abstract

Does reducing income inequality encourage automation? Using data from 25 countries over 1993-2019, we examine how redistribution affects automation, measured by the robot stock-to-employment ratio. To address endogeneity, we use an instrumental variables strategy and find that increasing the income share of the bottom 50% accelerates automation, whereas redistributing away from the top 1% dampens it. Considering both margins jointly, redistribution-induced declines in the Gini coefficient increase automation on net. To interpret these findings, we develop a general equilibrium model featuring two opposing forces. Transfers to workers reduce labor supply, inducing firms to substitute toward robots. In contrast, taxing profits to finance redistribution discourages the supply of entrepreneurial skills, thereby restraining automation. When profit income is sufficiently concentrated, the labor-supply channel dominates, generating a positive net effect of redistribution on robot adoption, as is observed in the data.