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Putty-Clay Automation

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  • Martinez, Joseba

Abstract

This paper develops a model of automation as an embodied technology. The gradual discovery and obsolescence of technologies gives rise to a distribution of capital with varying degrees of automation. I derive conditions under which, aggregating over heterogeneous production units, output can be represented as a CES production function, the parameters of which are determined endogenously by the distribution of technology. Through the lens of the canonical model, I show how the distribution of automation technology determines its aggregate effects; in the long run, only the distribution of technology matters. The transition dynamics of the economy in response to an increase in frontier automation technology are consistent with notable micro and macro US stylized facts of recent decades: at the firm level, a fall in the labor share driven by reallocation towards low labor share establishments; at the macro level, slowing total factor productivity growth and a fall in the real interest rate.

Suggested Citation

  • Martinez, Joseba, 2021. "Putty-Clay Automation," CEPR Discussion Papers 16022, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16022
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    More about this item

    Keywords

    Automation; Factor shares; Vintage capital; Aggregation;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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