Automation and the Rise of Superstar Firms

Hamid Firooz (), Zheng Liu and Yajie Wang

No 2022-05, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Using an instrumental variable approach, we document evidence that the rise in automation technology contributed to the rise of superstar firms. We explain this empirical link in a general equilibrium framework with heterogeneous firms and variable markups. Firms can operate a labor-only technology or, by paying a per-period fixed cost, an automation technology that uses both workers and robots. Given the fixed cost, larger and more productive firms are more likely to automate. Automation boosts labor productivity, enabling those large automating firms to expand further, and thus raising industry concentration. Our calibrated model can replicate the highly skewed automation usage toward superstar firms observed in the Census data. Since robots can substitute for workers, increased automation raises sales concentration more than employment concentration, consistent with empirical evidence. In the model, automation raises aggregate productivity but exacerbates markup distortions. Our calibration suggests that a modest subsidy for automating firms improves welfare.

Keywords: automation; market concentration; labor share; markup; reallocation; heterogeneous firms (search for similar items in EconPapers)
JEL-codes: E24 L11 O33 (search for similar items in EconPapers)
Pages: 37
Date: 2024-10-18
New Economics Papers: this item is included in nep-bec, nep-com, nep-dge, nep-mac and nep-tid
Note: Original title: Automation, Market Concentration, and the Labor Share. Original publication date: 4/1/2022. Revised publication date: 11/1/2023.
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Citations: View citations in EconPapers (2)

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Journal Article: Automation and the rise of superstar firms (2025)
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DOI: 10.24148/wp2022-05

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