Automation, Human Task Innovation, and Labor Share: Unveiling the Role of Elasticity of Substitution

This study examines the global decline in labor share since the 2005, focusing on the impacts of robotic and human innovation within a general equilibrium framework. Using novel shift-share variables ---operational robot data, patent similarity to automation vocabularies, and cognitive task intensity scores--- the research addresses endogeneity issues across countries and sectors. Findings reveal that while robotic innovation negatively impacts labor share, human innovation exerts a predominantly positive influence, largely offsetting automation's effects. Additionally, we find the elasticity of substitution between labor and capital is less than one, aligning with much of the literature. The paper acknowledges two primary limitations. First, the price factors are not exogenous. Second, fixed effects account for a significant proportion of the observed decline in labor share.