The Economic Implications of AI-Driven Automation: A Dynamic General Equilibrium Analysis

HARIT, ADITYA (2024): The Economic Implications of AI-Driven Automation: A Dynamic General Equilibrium Analysis.

Abstract

This paper develops a dynamic general equilibrium (DGE) model to assess the impact of AI-driven automation on labor and capital allocation in an economy. The model considers the endogenous response of firms to task automation and labor substitution, showing how the increasing use of AI affects total output (GDP), wages, and capital returns. By introducing task complementarity and dynamic capital accumulation, the paper explores how automation impacts labor dynamics and capital accumulation. Key results show that while AI enhances productivity and GDP, it can also reduce wages and increase income inequality, with long-run effects that depend on the elasticity of substitution between labor and capital.

• Item Type: MPRA Paper
• Language: English
• Keywords: AI-driven Automation, Dynamic General Equilibrium, Labor Markets, Capital Accumulation, Income Distribution, Technological Change, Task Automation, Economic Inequality, Labor Demand, Capital Returns, Economic Policy, Neoclassical Growth Theory, Labor-Capital Dynamics.
• Subjects: A - General Economics and Teaching > A1 - General Economics > A10 - General; A - General Economics and Teaching > A1 - General Economics > A11 - Role of Economics ; Role of Economists ; Market for Economists; C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E13 - Neoclassical; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J4 - Particular Labor Markets; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J40 - General; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy; P - Economic Systems > P4 - Other Economic Systems; P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies

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