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Capital-augmenting technical change in the context of untapped automation opportunities

Arthur Jacobs ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: In this study, I explore the effects of capital-augmenting technical change (CATC) in a simple taskbased context where untapped automation opportunities exist. I contribute to the literature by showing analytically that regardless of the value of the elasticity of substitution between capital and labor, CATC lowers the labor share of income in this setting. In contrast to standard production functions, CATC is thus capital-biased even in the face of strong complementarity between capital and labor. The intuitive explanation for this result is that a rise in the effectiveness of capital has two first-round effects on the labor share, namely (1) the standard effect whose sign is fully determined by the elasticity of substitution, and (2) a contraction in the set of tasks in which labor is more cost-effective than capital. Furthermore, I show that CATC increases the wage rate unambiguously. I argue that CATC in the face of untapped automation opportunities can be regarded as a convenient modelling approach to automation and I show that the implications of this approach match recent empirical findings regarding the labor market impact of automation.

Keywords: automation; capital-augmenting technical change; task-based production function; factor shares (search for similar items in EconPapers)
JEL-codes: E25 O33 O40 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-05
New Economics Papers: this item is included in nep-mac
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