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Capital-augmenting technical change in the context of untapped automation opportunities

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  • Arthur Jacobs

Abstract

In this study, I explore the effects of capital-augmenting technical change (CATC) in a simple taskbased context where untapped automation opportunities exist. I contribute to the literature by showing analytically that regardless of the value of the elasticity of substitution between capital and labor, CATC lowers the labor share of income in this setting. In contrast to standard production functions, CATC is thus capital-biased even in the face of strong complementarity between capital and labor. The intuitive explanation for this result is that a rise in the effectiveness of capital has two first-round effects on the labor share, namely (1) the standard effect whose sign is fully determined by the elasticity of substitution, and (2) a contraction in the set of tasks in which labor is more cost-effective than capital. Furthermore, I show that CATC increases the wage rate unambiguously. I argue that CATC in the face of untapped automation opportunities can be regarded as a convenient modelling approach to automation and I show that the implications of this approach match recent empirical findings regarding the labor market impact of automation.

Suggested Citation

  • Arthur Jacobs, 2022. "Capital-augmenting technical change in the context of untapped automation opportunities," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 22/1046, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:22/1046
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    automation; capital-augmenting technical change; task-based production function; factor shares;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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