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Automation, New Technology, and Non-Homothetic Preferences

Listed author(s):
  • Clemens Struck

    ()

    (University College Dublin)

  • Adnan Velic

    ()

    (Dublin Institute of Technology)

This paper provides a microfoundation of the neoclassical growth theory. To rationalize a substantial share of labor in income despite ongoing automation of tasks, we present a simple model in which demand shifts toward goods of increasing sophistication along a vertically differentiated production structure. Automation of more advanced goods requires increasingly sophisticated capital which remains scarce along the growth path. This is why labor maintains a substantial share in income independent of core parameter assumptions. While our model features an entirely different mechanism, we show that its aggregate representation is the one of a neoclassical model with labor-augmenting technical change.

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File URL: https://www.tcd.ie/Economics/TEP/2017/TEP1217.pdf
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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep1217.

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Length: 16 pages
Date of creation: May 2017
Handle: RePEc:tcd:tcduee:tep1217
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Trinity College, Dublin 2

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Fax: 6772503
Web page: http://www.tcd.ie/Economics/

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