Automation, Human Task Innovation, and Labor Share: Unveiling the Role of Elasticity of Substitution

Baek, Seungjin and Jeong, Deokjae (2023): Automation, Human Task Innovation, and Labor Share: Unveiling the Role of Elasticity of Substitution.

Abstract

This paper investigates the elements contributing to the decline in labor share, with a specific focus on the roles of `automation' and `innovation in human tasks.' We construct a general equilibrium model that separately incorporates both robot and non-robot capital to derive an econometric specification. Based on regression results, we estimate the elasticity of substitution between labor and non-robot capital to be less than one, while the elasticity of substitution between tasks is greater than, but close to, one. Together with these estimates, our regression results yield three major findings. First, we identify two distinct channels through which robots affect labor share: automation and the decrease in the price of robots. Both channels are found to negatively impact labor share. Our general equilibrium model predicts that the effect of declining robot prices will intensify as robots become more prevalent. Second, we are the first to empirically evaluate the impact of human task innovation on labor share by constructing a novel index for new human tasks. Our accounting analysis suggests that the positive influence of human task innovation outweighs the adverse effects of automation. Lastly, by utilizing estimates of the elasticity of substitution between labor and non-robot capital, as well as between tasks, we elucidate the mechanisms through which factor prices affect the labor share. Specifically, we find that both the negative effect of automation and the positive effect of human task innovation are amplified through the aggregated task price channel.

• Item Type: MPRA Paper
• Language: English
• Keywords: automation; tasks; labor share; robot; elasticity of substitution
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries

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