Author : Eunseong Ma(Yonsei University), Kisan Choi(Bank of Korea)

This paper studies how new technologies interact with labor-market frictions to shape aggregate and distributional outcomes in a Korean context. We build a quantitative heterogeneous-agent general equilibrium model with incomplete markets in which households choose between working fixed hours and investing time in learning, subject to convex human-capital adjustment costs. Firms combine capital and effective labor and face quadratic costs of adjusting employment. In the benchmark polarized scenario, long-run output, consumption, and investment all increase, but aggregate employment falls as workers reallocate time from market work toward human-capital accumulation. This reallocation generates endogenous job polarization across skill groups and raises income and consumption inequality. Labor-market frictions are crucial for the magnitude and persistence of these effects: slow, costly skill adjustment amplifies transitional employment losses and distributional gaps. Finally, we show that the sectoral direction of technological change—which skill group the technology favors—plays a central role in shaping both macroeconomic performance and inequality.