Automation, Economic Growth, and the Income Distribution in a Two‐Class Economy

ABSTRACT This study presents a growth model with automation technology to consider two classes, workers and capitalists, and investigates how the existence of automation capital affects economic growth and the income distribution. In addition to the two production factors, labor and traditional capital, we consider automation capital as a third production factor. We also introduce Pasinetti‐type saving functions into the model to investigate how the difference between the savings rates of capitalists and workers affects economic growth and the income distribution. We find that when the savings rate of capitalists is above a threshold level, per capita output exhibits endogenous growth irrespective of the savings rate of workers. In this case, the income gap between workers and capitalists widens over time. By contrast, when the savings rate of capitalists is below the threshold level, two long‐run states occur depending on the savings rate of workers: the share of automation capital of capitalists approaches either a constant or zero. In both cases, per capita output growth is zero and the income gap between the two classes becomes constant over time. We additionally show that the introduction of a redistribution policy that imposes a robot tax on capitalists can narrow the income gap between workers and capitalists. However, this income redistribution policy lowers per capita output growth. Therefore, there is a trade‐off between equality and growth.