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See detailAutomation, Economic Growth, and the Labor Share - A Comment on Prettner (2019)
Irmen, Andreas UL; Heer, Burkhard

E-print/Working paper (2019)

Prettner (2019) studies the implications of automation for economic growth and the labor share in a variant of the Solow-Swan model. The aggregate production function allows for two types of capital ... [more ▼]

Prettner (2019) studies the implications of automation for economic growth and the labor share in a variant of the Solow-Swan model. The aggregate production function allows for two types of capital, traditional and automation capital. Traditional capital and labor are imperfect substitutes whereas automation capital and labor are perfect substitutes. In this paper, we point to a flaw in Prettner’s analysis that invalidates his main analytical and computational findings. In contrast to Prettner, we argue that both kinds of capital are perfect substitutes as stores of value, and, therefore, must earn the same rate of return in equilibrium. Our computational analysis shows that the model dramatically overestimates the actual decline in the US labor share over the last 50 years. [less ▲]

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See detailPopulation, Pensions, and Endogenous Economic Growth
Irmen, Andreas UL; Heer, Burkhard

in Journal of Economic Dynamics & Control (2014), 46

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme ... [more ▼]

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy and obtain the following results. First, the effect of a decline in population growth on labor productivity growth is positive and quantitatively significant. In our benchmark, it is predicted to increase from an average annual growth rate of 1.74% over 1990–2000 to 2.41% in 2100. Second, institutional characteristics of the pension system matter both for the growth performance and for individual welfare. Third, the assessment of pension reform proposals may depend on whether economic growth is endogenous or exogenous. [less ▲]

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See detailPopulation, Pensions, and Endogenous Economic Growth
Heer, Burkhard; Irmen, Andreas UL

E-print/Working paper (2013)

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme ... [more ▼]

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy and obtain the following results. First, the effect of a decline in population growth on labor productivity growth is positive and quantitatively significant. In our benchmark, it is predicted to increase from an average annual growth rate of 1.74% over 1990-2000 to 2.41% in 2100. Second, institutional characteristics of the pension system matter both for the growth performance and for individual welfare. Third, the assessment of pension reform proposals may depend on whether economic growth is endogenous or exogenous. [less ▲]

Detailed reference viewed: 117 (4 UL)