Demographic Change, Automation and the Role of Education

This paper analyzes the relationship between demographic change and automation while taking the role of education into account. This is illustrated by incorporating skilled and unskilled labor into a theoretical model. If labor supply by households decreases, for example, due to demographic change, the model states that the optimal level of automation capital increases. However, this relationship depends crucially on the level of education in the workforce. Motivated by this novel prediction derived from the model, a new data set allowing for testing of the prediction is constructed. Patent data are combined with an automation classification to arrive at a novel measure of automation. In a series of analyses, evidence for the theoretical prediction is found. While there is a negative relationship between automation capital and population growth, the results corroborate the theoretical prediction that it is crucial to account for the role of education in that relationship. Doing so yields highly significant results which suggest that population growth is negatively correlated with automation, but that this is only true if the workforce consists of predominantly unskilled workers.