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 particular focus on the roles of 'automation' and 'innovation in human-exclusive tasks.' We construct a general equilibrium model that separately incorporates both robot and non-robot capital to derive a regression equation. The regression results reveal four major findings. First, we identify two distinct channels through which robots influence labor share: automation and the reduction in robot prices. We find that both channels negatively impact labor share. Our general equilibrium model predicts that the effect of decreasing robot prices will intensify as robots become more prevalent. Second, we are the first to empirically assess the impact of innovation in human-exclusive tasks on labor share. Our findings suggest that the positive influence of human-exclusive innovation outweighs the adverse effect of automation. Third, we estimate that the elasticity of substitution between labor and non-robot capital is less than one, while the elasticity of substitution between tasks is greater than, but close to, one. Lastly, based on these estimates, we clarify the mechanisms by which the prices of factors —labor, robots, and non-robot capital— influence labor share. Specifically, we observe that both the negative effect of automation and the positive effect of human-exclusive 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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