Not a Typical Firm: Capital–Labor Substitution and Firms' Labor Shares

Joachim Hubmer and Pascual Restrepo

American Economic Journal: Macroeconomics, 2026, vol. 18, issue 2, 34-71

Abstract: The US labor share has declined, especially in manufacturing and retail. Yet the labor share of a typical firm in these sectors has risen. We introduce a model where firms incur fixed costs to automate tasks. A decline in the price of capital goods used for automation reproduces the observed patterns: large firms automate tasks, reducing the aggregate labor share, while the median firm continues to operate a labor-intensive technology. When calibrating the automation fixed costs to match the observed adoption heterogeneity, the model generates the aggregate and firm-level facts quantitatively in response to lower capital prices, especially in manufacturing.

JEL-codes: D21 D33 E25 L60 O32 (search for similar items in EconPapers)
Date: 2026
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Working Paper: Not a Typical Firm:Capital-Labor Substitution and Firms' Labor Shares (2023)
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DOI: 10.1257/mac.20230325

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