I keep thinking about labor shares though. Yes, wages might rise in a world with AGI, so far so good. But I still worry about the implications of a decreasing labor share.
I think my main concern is a political economy one. A higher capital share might mean that political power is concentrated among few capital owners, which in turn affects the welfare state and so on. This argument is not new, you can find it in this essay and elsewhere. I might try to turn this into a formal model. Do you know if such work exists already?
One could also make a reference point argument: My utility is determined by my consumption, but also by my standing relative to others. I might be worse of then if some people’s income explodes, but mine rises only somewhat.
Thanks! People have certainly argued at least since Marx that if the people owning the capital get all the income, that will affect the state. I think more recent/quantitative work on this, e.g. by Stiglitz, has generally focused on the effects of inequality in wealth or income, rather than the effects of inequality via a high capital share per se. But this isn’t my area at all—ask your favorite LLM : )
The reference point argument is also about consumption inequality rather than what gives rise to it. My guess would be that if we all really get radical life extension and a huge quantity of amazing goods and services, that will probably for most people outweigh whatever jealousy comes with the knowledge that others got more, but who knows.
In any event, my guess would be that even if the marginal product of labor stays high or rises following full automation, most people’s incomes will eventually come not from wages, but from interest on whatever investments they have (even if they started small) or from redistribution. And full automation could well trigger so much redistribution that income inequality shrinks, since it will remove one motivation for letting income inequality remain high today, namely that unlike with robots, taxing productive people too much can discourage them from working as much.
Great post!
I keep thinking about labor shares though. Yes, wages might rise in a world with AGI, so far so good. But I still worry about the implications of a decreasing labor share.
I think my main concern is a political economy one. A higher capital share might mean that political power is concentrated among few capital owners, which in turn affects the welfare state and so on. This argument is not new, you can find it in this essay and elsewhere. I might try to turn this into a formal model. Do you know if such work exists already?
One could also make a reference point argument: My utility is determined by my consumption, but also by my standing relative to others. I might be worse of then if some people’s income explodes, but mine rises only somewhat.
Thanks! People have certainly argued at least since Marx that if the people owning the capital get all the income, that will affect the state. I think more recent/quantitative work on this, e.g. by Stiglitz, has generally focused on the effects of inequality in wealth or income, rather than the effects of inequality via a high capital share per se. But this isn’t my area at all—ask your favorite LLM : )
The reference point argument is also about consumption inequality rather than what gives rise to it. My guess would be that if we all really get radical life extension and a huge quantity of amazing goods and services, that will probably for most people outweigh whatever jealousy comes with the knowledge that others got more, but who knows.
In any event, my guess would be that even if the marginal product of labor stays high or rises following full automation, most people’s incomes will eventually come not from wages, but from interest on whatever investments they have (even if they started small) or from redistribution. And full automation could well trigger so much redistribution that income inequality shrinks, since it will remove one motivation for letting income inequality remain high today, namely that unlike with robots, taxing productive people too much can discourage them from working as much.