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Automation, automatic capital returns, and the functional income distribution

Author

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  • Pablo Casas
  • José L. Torres

Abstract

This paper studies the economic implications of automation. We consider that automation is affected by disruptive technologies which entail a structural change consisting in the introduction of a new physical capital input (a combination of artificial intelligence and autonomous robots), additional to ‘traditional’ capital assets and labor. This new ‘automatic’ physical capital is assumed to carry out production activities without the need to be combined with labor. We propose a simple production function combining both traditional and new technologies, and show that the consequences of automation depend on the combination of the automatic capital adoption rate and the elasticity of substitution between traditional and automatic technology. We find out that, if the adoption rate is below a threshold that matches the marginal productivity of automatic capital, little effects are derived from automation, independently of the elasticity of substitution. However, if the automatic capital adoption rate is above the threshold level and the elasticity of substitution is higher enough, the automation process can lead to a robocalypse scenario with a total shift of both traditional capital and labor. We estimate, through the benchmark calibration of the model, that the adoption rate threshold for automatic capital is about 22.5%.

Suggested Citation

  • Pablo Casas & José L. Torres, 2023. "Automation, automatic capital returns, and the functional income distribution," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(1), pages 113-135, January.
    • Handle: RePEc:taf:ecinnt:v:32:y:2023:i:1:p:113-135
    DOI: 10.1080/10438599.2021.1891659
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    Cited by:

    1. Charalampidis, Nikolaos & Guillochon, Justine, 2025. "Searching for robots," Economic Modelling, Elsevier, vol. 152(C).
    2. Pablo Casas & José L. Torres, 2024. "Government size and automation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 780-807, June.
    3. Florent Nkouaga, 2024. "Pandemic-Era Trends in US Automatic Payment Adoption: A 2022 Behavioral Analysis," International Business Research, Canadian Center of Science and Education, vol. 17(6), pages 1-1, December.
    4. Jingwen Lyu & Wei Xiao & Wei He, 2025. "Unveiling the impact of intelligent transformation on economic resilience toward sustainable solutions: a spatio–temporal heterogeneity perspective," Asia-Pacific Journal of Regional Science, Springer, vol. 9(2), pages 387-418, June.
    5. Furgasė Jevgenija & Miceikienė Astrida, 2024. "Reforming Labour Taxation: Addressing the Employment Effects of Technological Progress," Management Theory and Studies for Rural Business and Infrastructure Development, Sciendo, vol. 46(4), pages 592-608.

    More about this item

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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