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Factors Influencing Labor Share: Automation, Task Innovation, and Elasticity of Substitution

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  • Baek, Seungjin
  • Jeong, Deokjae

Abstract

This paper explores the underlying factors contributing to the recent decline in labor share, focusing specifically on the roles of automation and the development of new tasks that are exclusive to humans. First, our paper strengthens the argument that automation has a negative impact on labor share. Second, we are the first to empirically estimate the influence of new human-exclusive tasks on labor share. Our findings suggest that the positive impact of human-exclusive tasks dominates the negative impact brought about by automation. Third, we find that the elasticity of substitution between labor and capital is less than one, offering a coherent framework for predicting how various factors ---capital price, robot price, and wages--- impact labor share. We identify two distinct mechanisms through which robots negatively affect labor share: automation and a reduction in the price of robots. Our general equilibrium model predicts that the latter will gain increasing importance in the future as robots become more prevalent. Lastly, we estimate the elasticity of substitution between tasks to be one, empirically validating an assumption that many existing studies have made.

Suggested Citation

  • Baek, Seungjin & Jeong, Deokjae, 2023. "Factors Influencing Labor Share: Automation, Task Innovation, and Elasticity of Substitution," MPRA Paper 118730, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118730
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    References listed on IDEAS

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    More about this item

    Keywords

    automation; tasks; labor share; robot; elasticity of substitution;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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