Income and Inequality Under Asymptotically Full Automation

We study a minimal model of automation in which, in the limit, labor is replaced by capital in all tasks. If tasks are gross complements and automation is sufficiently slow, the labor share remains strictly positive despite an endogenous reduction in hours worked and full automation in the limit. Heterogeneity in the form of financial frictions naturally produces "workers" and "capitalists". Workers are right to fear automation: sufficiently high automation rates lower workers' consumption, both in absolute and relative terms. When complementarities across tasks and between consumption and leisure are strong, financial frictions lower the threshold pace of automation and can therefore facilitate the demise of the labor share: in order to compensate for financial frictions, workers save and work more, leading to lower wage and consumption growth. A suggestive calibration is consistent with automation being sufficiently slow to deliver a labor share that remains strictly positive in the limit