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The Race Between Machine and Man: Implications of Technology for Growth, Factor Shares and Employment

date Date: April 1, 2016
date Author(s): Daron Acemoglu, Pascual Restrepo
date Affiliation: MIT

The advent of automation and the simultaneous decline in the labor share and employment
among advanced economies raise concerns that labor will be marginalized and made redundant
by new technologies. We examine this proposition using a task-based framework in which tasks
previously performed by labor can be automated and more complex versions of existing tasks, in
which labor has a comparative advantage, can be created. We characterize the equilibrium in this
model and establish how the available technology and the choices of firms between producing with
capital or labor determine factor prices and the allocation of factors to tasks. In a static version of
our model where capital is fixed and technology is exogenous, automation reduces employment and
the share of labor in national income, while the creation of more complex tasks has the opposite
effects. In a dynamic version of our model, capital adjusts in response to automation, which keeps
the interest rate fixed. Although in the long run this response raises wages, automation still reduces
the labor share.

In our full model, we endogenize the direction of research towards automation and the creation
of new complex tasks. Under reasonable conditions, there exists a stable balanced growth path
in which the two types of innovations go hand-in-hand. An increase in automation reduces the
cost of producing the least complex tasks using labor, and thus discourages further automation
and encourages the faster creation of new complex tasks. The endogenous response of technology
restores the labor share and employment back to their initial level. Although the economy selfcorrects,
the equilibrium allocation of research effort is not optimal. To the extent that wages
reflect quasi-rents for workers, firms engage in too much automation. Finally, we extend the model
to include workers of different skills. We find that inequality increases during transitions but the
self-correcting forces in our model also limit the increase in inequality over the long-run

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