Automation Capital, Income Distribution and Growthwith Institutional Wage-Setting

Luca Zamparelli

No 2604, Working Papers from New School for Social Research, Department of Economics

Abstract: This paper develops a growth model that integrates automation, conceptualized as a distinct form of "automation capital", into a Classical–Marxian framework characterized by an institutionally given real wage and an endogenous labor supply. Automation capital and labor are perfect substitutes, while the two are perfect complements with traditional capital. Capitalists allocate savings between investment in traditional and automation capital. Below a critical investment share in automation, the economy converges to a balanced growth path, characterized by stable income distribution and a negative relationship between automation and the labor share. Beyond it, the economy tends toward full automation and a null wage share. Automation’s effect on growth is regime-dependent: it accelerates growth under high wages but retards it under low wages. Consequently, profit-maximizing capitalists with an infinite horizon choose full automation under high wages and none under low wages. With a finite horizon in a low-wage regime, they may adopt limited automation, trading immediate distributional gains against long-run growth. A strategic union, valuing both wages and employment growth, will set a low wage to preempt full automation, leading to an equilibrium with partial or no automation depending on the capitalists’ planning horizon.

Pages: 24 pages
Date: 2026-05
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https://repec.economicpolicyresearch.org/econ/2026/NSSR_WP_042026.pdf First version, 2026 (application/pdf)

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