Question

The figure shows Lorenz curves before and after automation (the solid and dashed line, respectively). Prior to automation there are 90 workers who receive a total of 60% of the economy’s income. Of these 90 workers, 60 have skills which are substitutes for those of the new robots, while 30 have skills which are complementary to the robots. There are 5 owners who earn 40% of the economy’s income, and 5 workers who are unemployed. The total income of the economy increases by 10% due to automation. Based on this information, which of the following statements is correct?

Initial Gini coefficient: 0.38 Post polarization Gini: 0.53 100 - Cumulative share of income (%) 25 + ----- OH 0 5 10 65 95 100 ....---- Unemployed Routine manual Skills Owners of robots & non-manual labour complementary to robots Cumulative share of the population from lowest to highest income (%)

a）

The increase in Gini coefficient indicates a decrease in inequality.

b）

The share of the income received by each worker with complementary skills increases by 75%.

c）

Post-automation, the 60 workers with substitutable skills now each earn 0.42% of the economy’s income.

d）The absolute income of the owners remains the same before and after automation.

Answer 1

Option b)

A) false, bcoz rise in value of G imply that income inequality rises

B) before automation,

Each of the 90 workers get = [.6/90]*100

= .66% of total economy income

After automation, 30 workers with complementary skills get = (60-25) = 35% of income

Each of 30 gets = .35/30 = 1.1667 %

So rise in each worker share = (1.1667- .66)/.66

= 75%

b is true

c) post automation, there are 55 workers with substituable skills , get = 25% of income

Each gets = .25/55

= .45%

False

D) false, absolute income rises