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Explaining the labor share: automation vs labor market institutions

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  • Luís Guimarães

    () (Queen’s University Belfast and cef.up)

  • Pedro Mazeda Gil

    () (cef.up, FEP, Universidade do Porto)

Abstract

We propose a simple model to assess the evolution of the US labor share and how automation affects employment. In our model, heterogeneous firms may choose a manual technology and hire a worker subject to matching frictions. Alternatively, they may choose an automated technology and produce using only machines (robots). Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions play an almost insignificant role in explaining the labor share. Third, the US labor share only (clearly) fell after 1987 because of a contemporaneous acceleration of automation's productivity.

Suggested Citation

  • Luís Guimarães & Pedro Mazeda Gil, 2019. "Explaining the labor share: automation vs labor market institutions," CEF.UP Working Papers 1901, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:cetedp:1901
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Abeliansky, Ana Lucia & Prettner, Klaus, 2017. "Automation and demographic change," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168215, Verein für Socialpolitik / German Economic Association.
    2. Abeliansky, Ana & Algur, Eda & Bloom, David E. & Prettner, Klaus, 2020. "The Future of Work: Challenges for Job Creation Due to Global Demographic Change and Automation," IZA Discussion Papers 12962, Institute of Labor Economics (IZA).
    3. Gasteiger, Emanuel & Prettner, Klaus, 2020. "Automation, stagnation, and the implications of a robot tax," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 02/2020, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    4. Guimarães, Luis & Gil, Pedro, 2019. "Looking ahead at the effects of automation in an economy with matching frictions," MPRA Paper 96238, University Library of Munich, Germany.

    More about this item

    Keywords

    Automation; Labor Share; Technology Choice; Employment; Matching Frictions.;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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