Factors Influencing Labor Share: Automation, Task Innovation, and Elasticity of Substitution

Seungjin Baek and Deokjae Jeong

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the underlying factors contributing to the recent decline in labor share, focusing specifically on the roles of automation and the development of new tasks that are exclusive to humans. First, our paper strengthens the argument that automation has a negative impact on labor share. Second, we are the first to empirically estimate the influence of new human-exclusive tasks on labor share. Our findings suggest that the positive impact of human-exclusive tasks dominates the negative impact brought about by automation. Third, we find that the elasticity of substitution between labor and capital is less than one, offering a coherent framework for predicting how various factors ---capital price, robot price, and wages--- impact labor share. We identify two distinct mechanisms through which robots negatively affect labor share: automation and a reduction in the price of robots. Our general equilibrium model predicts that the latter will gain increasing importance in the future as robots become more prevalent. Lastly, we estimate the elasticity of substitution between tasks to be one, empirically validating an assumption that many existing studies have made.

Keywords: automation; tasks; labor share; robot; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: D24 D33 E24 E25 J23 O33 O57 (search for similar items in EconPapers)
Date: 2023-10-01
New Economics Papers: this item is included in nep-lma and nep-tid
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