The Race Between Machine and Man: Implications of Technology for Growth, Factor Shares and Employment. NBER Working Paper No. 22252 - Issued May 2016 Daron Acemoglu and Pascual Restrepo Presented by Sergio Feijoo UC3M Macro Reading Group May 10, 2017
Motivation Accelerated automation of tasks performed by human labor raises concerns about making labor redundant. Decline in labor share often related with increase in automation. Contribution of the paper Develop a framework where machines replace human labor which allows to study how this might (or might not) lead to lower employment and stagnant wages. Basic idea: 2 types of innovations. 1 Tasks performed by labor are replaced by capital. 2 New tasks in which labor has comparative advantage are created. Figure Acemoglu and Restrepo (2016). The Race Between Machine and Man. 1 / 15
Environment Capital is fixed and technology is exogenous. Final good Y produced combining tasks y piq ˆż N Y N 1 ypiq σ 1 σ di σ σ 1 Each task is produced combining lpiq or kpiq with a task-specific intermediate qpiq. All tasks can be produced by lpiq. Assume DI P rn 1, Ns s.t. tasks i ď I can be automated. Then ypiq B ı ηqpiq ζ 1 ζ ` p1 ηqr1pi ď I qkpiq ` γpiqlpiqs ζ 1 ζ ζ 1 ζ where γpiq is productivity of labor in task i. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 2 / 15
Environment Assume γpiq strictly increasing: Labor has strict comparative advantage in tasks with high index. In equilibrium D threshold I ď I s.t. i ď I are automated and i ą I are produced with labor. Employment level given by quasi-labor supply ˆ W L s RK Assumption: increasing on wage W relative to capital payments RK. Market clearing ż N N 1 kpiqdi K and ż N N 1 ˆ W lpiqdi L s RK Acemoglu and Restrepo (2016). The Race Between Machine and Man. 3 / 15
Environment Figure 1: Task space. Introducing new complex tasks (middle), automating existing tasks (bottom). Acemoglu and Restrepo (2016). The Race Between Machine and Man. 4 / 15
Equilibrium Tasks are produced competitively, hence ppiq must be equal to the minimum unit cost of production: $ ζ! j 1 η & c u 1 η ψ 1 ζ ` min R, W ) 1 ζ 1 ζ γpiq if i ď I p q ppiq ζ j 1 1 ζ 1 ζ % η 1 η ψ 1 ζ ` W γpiq if i ą I Since γpiq is increasing, DĨ s.t. if Ĩ ď I firms are indifferent between using capital or labor, i.e. W R γpĩ q (1) Equilibrium threshold I minti, Ĩ u. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 5 / 15
Equilibrium Production of task ypiq. Demand for factors @i ˆ η ζ qpiq ypiq 1 η and for i ď I ppiq ζ ψ ζ lpiq ypiqγpiq ζ 1 ppiq ζ W ζ kpiq ypiqppiq ζ R ζ Production of Y. Demand for task i ypiq Yppiq σ also can be expressed as $! & Yc min u R, γpiq) σ W if i ď I ypiq % Yc u W γpiq σ if i ą I Acemoglu and Restrepo (2016). The Race Between Machine and Man. 6 / 15
Equilibrium Demand for factors in terms of I # Yc u prqζ σr ζ if i ď I kpiq 0 if i ą I and $ & 0 if i ď I lpiq ζ σ % Y γpiq ζ 1 c u W W ζ if i ą I Capital and labor market clearing ż N I ż I N 1 γpiq Yc u prq ζ σ R ζ di K (2) ˆ W ζ σ ˆ W Y γpiq ζ 1 c u W ζ di L s γpiq RK (3) Acemoglu and Restrepo (2016). The Race Between Machine and Man. 7 / 15
Equilibrium Substitution between factors and intermediates makes the relative demands for factors non-homothetic. Automation may end up raising the demand for labor more than the demand for capital. Focus on case in which, given factor proportions, automation reduces the relative demand for labor. Assumption 1 One of the following conditions must hold: ˆγpN 1q 2`σ`η ą σ ζ, (σ close to ζ) γpnq ζ Ñ 1, (task production function is Cobb-Douglas) η Ñ 0, (share of intermediates small) Acemoglu and Restrepo (2016). The Race Between Machine and Man. 8 / 15
Equilibrium Proposition 1 (Equilibrium in the static model) Suppose Assumption 1 holds. Then given a range of tasks rn, N 1s, automation technology I P pn 1, Ns, and fixed capital stock K, there D! equilibrium with W, R and thresholds Ĩ and I s.t.: 1 Ĩ is determined by (1) and I minti, Ĩ u. 2 All i ď I are produced with capital and all i ą I are produced using labor, 3 Markets clear, 4 Factor prices satisfy the ideal price index condition ż N ˆ W 1 σ pi N ` 1qc u prq 1 σ ` c u di 1 (4) I γpiq Acemoglu and Restrepo (2016). The Race Between Machine and Man. 9 / 15
Equilibrium Figure 2: Static equilibrium. Allocation of factors constrained by technology. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 10 / 15
Equilibrium Figure 3: Static equilibrium. Allocation of factors not constrained by technology. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 11 / 15
Equilibrium Proposition 2 (Comparative statics) Suppose Assumption 1 holds. If I I ă Ĩ (constrained by technology), then d lnpw {Rq di ă 0 and d lnpw {Rq dn ą 0 If I Ĩ ă I (not constrained by technology), then d lnpw {Rq di 0 and d lnpw {Rq dn Moreover, in both cases the labor share and employment move in the same direction as ω. ą 0 Acemoglu and Restrepo (2016). The Race Between Machine and Man. 12 / 15
Dynamic Model Sketch of environment and results Accumulation of capital determined by savings of a representative HH. Main results: Prove existence of BGP when automation and creation of new tasks grow at the same rate. Continuous automation is compatible with balanced growth. Productivity Effect: Suppose automation runs ahead of the creation of news tasks. Short run effect same as in static model (capital is fixed). Negative impact of automation on equilibrium wage level disappears in the long run (capital adjusts to keep interest rate constant). Automation, by enabling the substitution of the cheaper capital for labor, increases productivity and thus the demand for labor and wages. In any case, in the long run both labor share and employment decrease with automation. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 13 / 15
Full Model Sketch of environment and results Endogenize the pace at which automation and the creation of new complex tasks proceeds. New intermediates can be introduced by technology monopolists. Main results: Prove existence of BGP which is asymptotically and globally stable (under more stringent assumptions that dynamic model). Continuous automation is compatible with balanced growth. Welfare: Equilibrium features too much automation vs. Planner s problem. Encouraging the creation of new tasks improves welfare. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 14 / 15
Summary / Conclusions Develop a task-based framework where machines replace human labor, and at the same time new complex labor intensive tasks are created. Automation is modelled as the (endogenous) expansion of the set of tasks that can be performed by capital. Static model (fixed capital): Increase of automation (may) reduce wages, labor share and employment. Dynamic/Full model: Continuous automation consistent with BGP. Automation not welfare improving: higher wages, but lower employment and labor share. Acemoglu and Restrepo (2016). The Race Between Machine and Man. 15 / 15
.S. grew by 17.5%. About half (8.84%) of this growth is explained by the additional employm New Job Creation Back h in occupations with new job titles relative to a benchmark category with no new job titles Percent change in employment growth by decade -200-150 -100-50 0 50 100 150 200 0 20 40 60 80 Share of new job titles at the beginning of each decade From 1980 to 1990 From 1990 to 2000 From 2000 to 2007 Figure 4: Employment growth by decade plotted against the share of new job e 1: titles Employment at the beginning growth by decade of each plotted decade againstfor the330 shareoccupations. of new job titles at the beginning of each decad cupations. Data from 1980 to 1990 (in dark blue), 1990 to 2000 (in blue) and 2000 to 2007 (in light blue, re-sc Acemoglu and Restrepo (2016). The Race Between Machine and Man.