Elsevier

Journal of Macroeconomics

Volume 49, September 2016, Pages 280-291
Journal of Macroeconomics

Robots and humans – complements or substitutes?

https://doi.org/10.1016/j.jmacro.2016.08.003Get rights and content
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Highlights

  • In a purely neoclassical comparative statics framework, an increase in the input of robot labor may increase or decrease the human wage, depending on the parameters of the production function.

  • Houthakker's method for characterizing aggregate production relationships can be used to estimate the effects of a change in the input of robots on the human wage, without necessitating construction of a capital aggregate.

  • Data from industries in the United States can be used to estimate how large the elasticity of substitution between human and robot labor must be such that an increase in the employment of robots will reduce the human wage.

  • It is not implausible that proliferation of Artificial Intelligence embodied in robots may have negative consequences for human wages.

Abstract

The effect of the spread of Artificial Intelligence (AI) on wages depends on both the form of aggregate production relationships and the elasticity of substitution between human and robotic labor. With a conventional production function involving labor, robots, and ordinary capital, an increase in robotic labor can have either a positive or a negative effect on wages. Alternatively, it is possible to estimate the aggregate production relationship without measuring capital or other fixed factors explicitly, using the procedure developed by Houthakker in the 1950s. Houthakker's method is based on the probability distribution of the productivity of the variable factor. Fitting different distributions to cross-sectional data on U.S. productivity, it is shown that if the elasticity of substitution between human and robotic labor is greater than about 1.9, the burgeoning of AI technologies will cause a decline in aggregate wages, other things equal. For the manufacturing sector, an even smaller human-robot elasticity of substitution is likely to result in declining wages of industrial workers as robots proliferate.

Keywords

Artificial intelligence
Elasticity of substitution
Wages
Aggregation
Technological change

JEL classification

E10
E24
E25
J30
O33
B59

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This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.