Automation, Growth, and Factor Shares in the Era of Population Aging

How does population aging affect economic growth and factor shares in times of increasingly automatable production processes? The present paper addresses this question in a new macroeconomic 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 if wages are higher. Automation is shown to boost the aggregate demand for labor if and only if the incentives to automate are strong enough and to reduce the labor share. These predictions obtain even though automation is labor-augmenting in the reduced-form production function. Population aging due to a higher longevity or a decline in fertility may strengthen or weaken the incentives to automate. Irrespective of its source, population aging is predicted to increase the growth rate of per-capita GDP in the short and in the long run. The short-run effect of higher longevity on the labor share is positive whereas the effect of a declining fertility is negative. In the long run, population aging reduces the labor share.