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Liyan Yang is a Professor of Finance and Peter L. Mitchelson/SIT Investment Associates Foundation Chair in Investment Strategy at the Rotman School of Management, University of Toronto (with a cross-appointment in the Department of Economics). His research interests mainly focus on financial markets, financial institutions, behavioral finance, data economics, and digital economy.
Website: http://individual.utoronto.ca/liyanyang/
Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4471295
Abstract
I will Early studies on automation suggest a positive monotonic relationship between technological progress and labor income inequality, driven by the labor replacement effect of automation. The new generation of information technologies, such as digitalization, introduces a novel labor supply effect that has largely been overlooked in the literature. We incorporate this labor supply effect into a growth model with human capital accumulation and occupational choice, in which digitalization reduces the learning costs for both skilled and unskilled workers. We show that the introduction of the labor supply effect of digitalization leads to both monotonic and non-monotonic relationships between digitalization and labor income inequality.
The key mechanisms of digitalization include both a direct effect on workers’ wage income and an indirect effect on their occupational choices and groupings. The net effect depends on the degree of skill-bias in labor demand and the marginal learning gap in labor supply between skilled and unskilled workers. A hump-shaped relationship between digitalization and labor income inequality can arise under plausible model calibrations. We verify our theoretical results and provide additional analysis through numerical simulations.
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