The Future of Labor: Automation and the Labor Share in the Second Machine Age

Hong Cheng, Lukasz Drozd, Rahul Giri, Mathieu Taschereau-Dumouchel and Junjie Xia

No 20-11, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. We calibrate the model and show that the general equilibrium implications of this elasticity are consistent with the aggregate trends during our sample period.

Keywords: labor share; labor’s share in income; automation; labor demand; industrial robots (search for similar items in EconPapers)
JEL-codes: D33 E24 E25 J23 J24 O25 O33 (search for similar items in EconPapers)
Pages: 55
Date: 2021-03-09
New Economics Papers: this item is included in nep-cna, nep-lma, nep-mac, nep-pay and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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DOI: 10.21799/frbp.wp.2021.11

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