Towards a Political Economy of Automation

This paper analyzes automation as the outcome of political choice. Firms substitute capital for labor through automation, which affects productivity and reduces the labor income share. The automation preferred by a household depends on the composition of its income, specifically its relative dependence on capital versus labor. The median voter theorem aggregates these preferences into a political choice of automation. When wealth is more concentrated than labor, a democratic one-person-one-vote regime implements less automation than the output-maximizing competitive equilibrium, while a plutocratic one-dollar-one-vote regime may induce excessive automation. Increasing wealth concentration intensifies under-automation in democracy and over-automation in plutocracy. We further show that, under plausible conditions, the competitive equilibrium entails excessive automation relative to the social welfare optimum. A calibration to U.S. data demonstrates that alternative political regimes can generate quantitatively large shifts in the labor share.