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A thread about my new @nberpubs paper with @sethbenzell:
Digital innovation is delivering remarkable progress.
Yet returns to ordinary labor (Median wages) and ordinary capital (interest rates) are both historically low. 1/n
Digital innovation is delivering remarkable progress.
Yet returns to ordinary labor (Median wages) and ordinary capital (interest rates) are both historically low. 1/n
@nberpubs One research literature addresses low median wages and falling labor share.
A completely different literature seeks to explain low interest rates and lack of capital investment.
We explain both of these sets facts with one model.
2/n
A completely different literature seeks to explain low interest rates and lack of capital investment.
We explain both of these sets facts with one model.
2/n
@nberpubs Our story:
Digital technologies augment both labor and capital by creating digital versions of them.
But rather than translating directly into growth, K and L both need a third factor: G.
3/n
Digital technologies augment both labor and capital by creating digital versions of them.
But rather than translating directly into growth, K and L both need a third factor: G.
3/n
Even as ordinary labor and capital get lower returns, the owners of a third factor, G, are getting superstar returns.
4/n
4/n
By definition, G cannot be digitized. But it is indispensable.
It’s whatever Zuckerberg, Bezos and Gates have.
Call it genius, luck, or some combination.
5/n
It’s whatever Zuckerberg, Bezos and Gates have.
Call it genius, luck, or some combination.
5/n
If G is inelastically supplied, then it will get a bigger share of GDP and income, even as digitization makes “vanilla” capital and labor ever more abundant.
6/n
6/n
We examine the data and find that it matches the predictions of our theory.
Read more here: nber.org/papers/w25585
cc: @SBenzell
/fin
Read more here: nber.org/papers/w25585
cc: @SBenzell
/fin
