The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment

TLDR

In a static model with fixed capital and exogenous technology, automation lowers employment, labor share, and wages, whereas the creation of new tasks has the opposite effect. The study investigates whether emerging technologies will make labor redundant by automating existing tasks and creating new ones that favor labor. The model endogenizes capital accumulation and research direction, showing that a low capital‑to‑wage rental rate leads to full automation, while otherwise a stable balanced growth path emerges where automation and new‑task creation coexist, with automation lowering labor costs and curbing further automation. With heterogeneous skills, the model finds that inequality rises during transitions driven by rapid automation and new task creation, but can stabilize in the long run under specific conditions. JEL codes: D63, E22, E23, E24, J24, O33, O41.

Abstract

We examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks, in which labor has a comparative advantage, can be created. In a static version where capital is fixed and technology is exogenous, automation reduces employment and the labor share, and may even reduce wages, while the creation of new tasks has the opposite effects. Our full model endogenizes capital accumulation and the direction of research toward automation and the creation of new tasks. If the long-run rental rate of capital relative to the wage is sufficiently low, the long-run equilibrium involves automation of all tasks. Otherwise, there exists a stable balanced growth path in which the two types of innovations go hand-in-hand. Stability is a consequence of the fact that automation reduces the cost of producing using labor, and thus discourages further automation and encourages the creation of new tasks. In an extension with heterogeneous skills, we show that inequality increases during transitions driven both by faster automation and the introduction of new tasks, and characterize the conditions under which inequality stabilizes in the long run. (JEL D63, E22, E23, E24, J24, O33, O41)