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Understanding Growth Through Automation: The Neoclassical Perspective

Author

Listed:
  • Lukasz A. Drozd
  • Mathieu Taschereau-Dumouchel
  • Marina Tavares

Abstract

We study how advancements in automation technology affect the division of aggregate income between capital and labor in the context of long-run growth. Our analysis focuses on the fundamental trade-off between the labor-displacing effect of automation and its positive productivity effect in an elementary task-based framework featuring a schedule of automation prices across tasks linked to the state of technology. We obtain general conditions for the automation technology and technical change driving automation to be labor-share displacing. We identify a unique task technology that reconciles the Kaldor facts with the presence of automation along the balanced growth path. We show that this technology aggregates to the Cobb–Douglas production function — thus providing novel task-based microfoundations for this workhorse functional form. We employ our theory to study the connection between the recent declines in the labor share and the unique nature of the current, IT-powered wave of automation.

Suggested Citation

  • Lukasz A. Drozd & Mathieu Taschereau-Dumouchel & Marina Tavares, 2022. "Understanding Growth Through Automation: The Neoclassical Perspective," Working Papers 22-25, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:94680
    DOI: 10.21799/frbp.wp.2022.25
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Charles I. Jones, 2021. "Recipes and Economic Growth: A Combinatorial March Down an Exponential Tail," NBER Working Papers 28340, National Bureau of Economic Research, Inc.
    3. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    4. Didier Sornette, 2002. "Mechanism For Powerlaws Without Self-Organization," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 133-136.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Automation; labor share; Uzawa’s theorem; Cobb-Douglas production function; capital-augmenting technological progress; balanced growth;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • 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
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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