Automation, Economic Growth, and the Labor Share - A Comment on Prettner (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, 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.