The inequality in wages intensified significantly in the US economy and other advanced economies. While the real wage of workers with a college graduate degree has risen sharply. The real wage of people without a diploma (high school dropouts) declined. In fact, the real
earnings of men without a high-school degree are now 15% lower than they were in 1980. In this picture you can see the evolution of wages for American men and women workers in the past four decades. In a paper, Acemoglu and Restrepo developed a model to investigate this wage diversion. They developed a framework where tasks across industries are allocated to different types of labor and capital. In order to produce goods and services, both capital and labor is needed. However, automation has changed the equilibrium between labor and capital in producing goods.Compared to four decades ago, more works and tasks have been deputed to capital. The cost of capital decreased significantly, especially in performing low-skilled tasks.
Low skilled workers are displaced from employment for which they have a competitive advantage as a result of automation technologies expanding the range of activities done by capital. Econometric regression models, verifies the results of the model. Controlling for changes in market power, de-unionization, 50 to 70 percent of divergence of the wages are due to automation.
