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The Future of Labor: Automation and the Labor Share in the Second Machine Age

Author

Listed:
  • Hong Cheng
  • Lukasz A. Drozd
  • Rahul Giri
  • Mathieu Taschereau-Dumouchel
  • Junjie Xia

Abstract

We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. We calibrate the model and show that the general equilibrium implications of this elasticity are consistent with the aggregate trends during our sample period.

Suggested Citation

  • Hong Cheng & Lukasz A. Drozd & Rahul Giri & Mathieu Taschereau-Dumouchel & Junjie Xia, 2021. "The Future of Labor: Automation and the Labor Share in the Second Machine Age," Working Papers 20-11, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:90188
    DOI: 10.21799/frbp.wp.2021.11
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    References listed on IDEAS

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    Cited by:

    1. Florent Bordot & André Lorentz, 2021. "Automation and labor market polarization in an evolutionary model with heterogeneous workers," Working Papers of BETA 2021-39, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Chrystalla Kapetaniou & Christopher A Pissarides, 2020. "Productive Robots and Industrial Employment: The role of national innovation systems," Discussion Papers 2023, Centre for Macroeconomics (CFM).

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    More about this item

    Keywords

    labor share; labor’s share in income; automation; labor demand; industrial robots;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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