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. Automation
is labor-augmenting in the reduced-form aggregate production function. If wages increase
then the incentive to automate becomes stronger. Moreover, the labor share declines even
though the aggregate production function is Cobb–Douglas. Population aging due to a
higher longevity reduces automation in the short and promotes it in the long run. It boosts
the growth rate of absolute and per-capita GDP in the short and the long run, lifts the labor
share in the short and reduces it in the long run. Population aging due to a decline in fertility
increases automation, reduces the growth rate of GDP, and lowers the labor share in the
short and the long run. In the short run, it may or may not increase the growth rate of per-capita GDP, in the long run it unequivocally accelerates per-capita GDP growth.