Events

Dr. Donghyun Suh
Economist Research
Department
Bank of Korea

This paper develops a model of hierarchical production organizations to study the effects of technological change on income distribution, focusing on top labor incomes. The model features workers with different skill levels who interact with machines. Machine complexity determines how machines are organized inside the hierarchy and, through that channel, whether they augment or substitute for workers. Two main findings emerge. First, if machines only perform sufficiently simple tasks, they augment low-skilled workers and attenuate the “superstar effect” by flattening the upper tail of the income distribution. Second, if machines become sufficiently complex, then they substitute for low-skilled workers and augment high-skilled workers, strengthening the superstar effect. Lastly, I examine future AI systems that automate managerial tasks performed by high-skilled workers. AI managers reduce inequality within and across occupations, with the largest gains for the least skilled. However, this equalizing effect need not survive superintelligence; once machines surpass all humans and supervise everyone, further advances can widen inequality. The results highlight the importance of machine complexity and supervision costs for understanding the distributional effects of technology.