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Explaining the labor share: automation vs labor market institutions

Luís Guimarães () and Pedro Gil ()
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Luís Guimarães: Queen’s University Belfast and cef.up

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We propose a simple model to assess the evolution of the US labor share and how automation affects employment. In our model, heterogeneous firms may choose a manual technology and hire a worker subject to matching frictions. Alternatively, they may choose an automated technology and produce using only machines (robots). Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions play an almost insignificant role in explaining the labor share. Third, the US labor share only (clearly) fell after 1987 because of a contemporaneous acceleration of automation's productivity.

Keywords: Automation; Labor Share; Technology Choice; Employment; Matching Frictions. (search for similar items in EconPapers)
JEL-codes: E24 J64 L11 O33 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2019-05
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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