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Automation, Automatic Capital Returns, and the Functional Income Distribution

Author

Listed:
  • José L. Torres

    (Department of Economics, University of Málaga)

  • Pablo Casas

    (Department of Economics, University of Huelva, and UNIA)

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 artifficial 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 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 of the new capital to the traditional capital and labor. 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

  • José L. Torres & Pablo Casas, 2020. "Automation, Automatic Capital Returns, and the Functional Income Distribution," Working Papers 2020-02, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
  • Handle: RePEc:mal:wpaper:2020-2
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    More about this item

    Keywords

    Automatic capital; Traditional inputs; Automation; Technological change; Income distribution;
    All these keywords.

    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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