Author(s)
Daron Acemoglu and Pascual Restrepo
Source
Journal of Economic Perspectives, Vol. 33, No. 2, pp. 3-30, 2019
Summary
Technological change affects employment and wages. Automation may reduce the demand for labor in some areas but reinstate it in others. For the past three decades, automation has tended to reduce the demand for labor overall.
Policy Relevance
Policymakers could reform tax policies to reduce incentives for excessive automation.
Main Points
- Tasks required for production of goods and services are either allocated to capital or to labor; new technologies affect productivity, but also shift the allocation of tasks between capital and labor.
- Automation increases productivity and involves new technologies that enable capital to be substituted for labor, the “displacement effect.”
- Automation may add to the demand for labor in non-automated tasks.
- Technologies also create new tasks for labor, the “reinstatement effect.”
- In the 19th and 20th centuries, we enjoyed rapid wage growth because of technologies with a large reinstatement effect; however, over the past three decades, the growth of labor demand has slowed, stagnating almost entirely in the past two decades.
- Labor demand overall will increase when a growing sector (historically, industry) has a higher labor demand than a shrinking sector (historically, agriculture), the “composition effect.”
- It is not “brilliant” technologies that limit employment and wage growth, but, rather, “so-so” technologies with a small reinstatement effect.
- Over the past three decades, data on wages and total employment shows weaker than usual productivity growth and a shift in the task content of production away from labor.
- Displacement effects are stronger and reinstatement effects are weaker.
- Automation has accelerated, and creation of new tasks has decelerated.
- In countries where labor is scarce, like Japan and Germany, high wages explain why new technologies brought higher productivity gains than in the United States.
- One key question is why productivity growth has slowed while automation has accelerated; the most likely explanation is that the incentives for automation have increased.
- Firms are given tax credits for purchase of equipment.
- Taxes (such as payroll taxes) are imposed on labor.
- Reduced government support for innovation contributes to a slow reinstatement effect.
- Returns from automation diminish, as more “so-so” and marginal technologies are used.
- The skills of the workforce are not well matched with needs created by new technologies.
- Policymakers could remove the tax incentives that encourage excessive automation, such as tax credits for equipment, and adopt new other policies to prevent the further decline of labor.