[en] How does population aging affect factor shares and economic growth in times
of declining investment good prices and increasingly automated production processes?
The present paper addresses this question in a new model of automation where competitive
firms perform tasks to produce output. Tasks require labor and machines as
inputs. New machines embody superior technological knowledge and substitute for labor
in the performance of tasks. The incentive to automate is stronger when the expected
wage is higher or when the price of an automation investment is lower. Automation is
shown to i) boost the aggregate demand for labor if the incentives to automate are strong
enough and ii) reduce the labor share. These predictions obtain even though automation
is labor-augmenting in the economy’s reduced-form production function. In the short
run, population aging weakens the incentives to automate and increases the labor share
as individuals augment their labor supply. These implications may be neutralized if, at
the same time, the price of investment goods declines. In the log-run, population aging
and a lower price of investment goods are reinforcing. Both imply more automation, a
lower labor share, and faster economic growth.
Research center :
CREA
Disciplines :
Economic systems & public economics
Author, co-author :
Irmen, Andreas ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
External co-authors :
no
Language :
English
Title :
Automation, Growth, and Factor Shares in the Era of Population Aging
Publication date :
2019
Event name :
Association for Public Economic Theory, International Meeting
Event organizer :
Association for PUblic Economic Theory (APET)
Event place :
Strasbourg, France
Event date :
June 2019
Audience :
International
Funders :
Inter Mobility Program of the FNR Luxembourg (“Competitive Growth Theory - CGT”)
