Automation, Growth and Factor Shares

This paper investigates the extent to which automation can explain the observed fall in labor's share of income in the United States in the last 30 years. I model the production process as a set of tasks that can be performed by labor or automated machinery (capital). Aggregating over firms that operate capital with differing degrees of automation, total output of the economy is given by a Constant Elasticity of Substitution (CES) function, but with parameters determined endogenously by the distribution of automation technology across firms. This model of the aggregate production function can reconcile three important empirical findings on US production and growth that the canonical CES model cannot: declining labor shares, aggregate capital-labor complementarity, and capital-biased technical progress. Using industry-level data, including a novel measure of aggregate task inputs into production, I find evidence that automation was a significant driving force of the US labor share between 1972-2010.