Understanding Growth Through Automation: The Neoclassical Perspective

Drozd, Lukasz A.; Taschereau-Dumouchel, Mathieu; Tavares, Marina

doi:10.21799/frbp.wp.2022.25

Working Paper

Understanding Growth Through Automation: The Neoclassical Perspective

Abstract: We study how advancements in automation technology affect the division of aggregate income between capital and labor in the context of long-run growth. Our analysis focuses on the fundamental trade-off between the labor-displacing effect of automation and its positive productivity effect in an elementary task-based framework featuring a schedule of automation prices across tasks linked to the state of technology. We obtain general conditions for the automation technology and technical change driving automation to be labor-share displacing. We identify a unique task technology that reconciles the Kaldor facts with the presence of automation along the balanced growth path. We show that this technology aggregates to the Cobb–Douglas production function — thus providing novel task-based microfoundations for this workhorse functional form. We employ our theory to study the connection between the recent declines in the labor share and the unique nature of the current, IT-powered wave of automation.

Keywords: Automation; labor share; Uzawa’s theorem; Cobb-Douglas production function; capital-augmenting technological progress; balanced growth;

JEL Classification: D33; E24; E25; J23; J24; O33; O4;

https://doi.org/10.21799/frbp.wp.2022.25