April 14, 2017/IMFBlog

Click here to read full article

By Mai Dao, Mitali Das, Zsoka Koczan, and Weicheng Lian

Imagine how a typical factory today operates in many advanced economies. There are no longer many workers lined up along assembly belts. Instead, there are only a few of them—mostly likely engineers—looking at screens of highly sophisticated equipment that does the assembly once done by humans. With technological advancement constantly driving down the cost of capital, firms are increasingly replacing workers with machines.

In the first part of this blog, based on Chapter 3 of the April 2017 World Economic Outlook, we discussed the economic benefits of technological advancement and global integration, and how these forces have impacted labor shares in advanced and emerging economies. In this installment, we discuss more in-depth the phenomenon in advanced economies of the “hollowing out” of the middle-skilled labor income share. This decline is bigger for sectors that are more exposed to automation.