We examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks, in which labor has a comparative advantage, can be created. In a static version where capital is fixed and technology is exogenous, automation reduces employment and the labor share, and may even reduce wages, while the creation of new tasks has the opposite effects. Our full model endogenizes capital accumulation and the direction of research toward automation and the creation of new tasks. If the long-run rental rate of capital relative to the wage is sufficiently low, the long-run equilibrium involves automation of all tasks. Otherwise, there exists a stable balanced growth path in which the two types of innovations go hand-in-hand. Stability is a consequence of the fact that automation reduces the cost of producing using labor, and thus discourages further automation and encourages the creation of new tasks. In an extension with heterogeneous skills, we show that inequality increases during transitions driven both by faster automation and the introduction of new tasks, and characterize the conditions under which inequality stabilizes in the long run.
We present a task-based model in which high- and low-skill workers compete against machines in the production of tasks. Low-skill (high-skill) automation corresponds to tasks performed by low-skill (high-skill) labor being taken over by capital. Automation displaces the type of labor it directly affects, depressing its wage. Through ripple effects, automation also affects the real wage of other workers. Counteracting these forces, automation creates a positive productivity effect, pushing up the price of all factors. Because capital adjusts to keep the interest rate constant, the productivity effect dominates in the long run. Finally, low-skill (high-skill) automation increases (reduces) wage inequality.
Modeling automation as factor-augmenting technological change has unappealing implications. Instead, modeling it as the process of machines replacing tasks previously performed by labor is both descriptively realistic and leads to distinct and plausible predictions. In contrast to factor-augmenting technological change, the automation of tasks always reduces the labor share and can reduce the equilibrium wage (for realistic parameter values). This approach to automation underscores the role of new tasks, changes in the comparative advantage of labor, the possibility that machines become more productive in automated tasks, and the elasticity of substitution and capital accumulation in the adjustment of the economy.
This paper studies the effects of enforcement on illegal behavior in the context of a large aerial spraying program designed to curb coca cultivation in Colombia. In 2006, the Colombian government pledged not to spray a 10 km band around the frontier with Ecuador due to diplomatic frictions arising from the possibly negative collateral effects of this policy on the Ecuadorian side of the border. We exploit this variation to estimate the effect of spraying on coca cultivation by regression discontinuity around the 10 km threshold and by conditional differences in differences. Our results suggest that spraying one additional hectare reduces coca cultivation by 0.022 to 0.03 hectares; these effects are too small to make aerial spraying a cost-effective policy for reducing cocaine production in Colombia.
Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counterintuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes and provide evidence and theoretical underpinnings for this argument.
We model the war on drugs in source countries as a conflict over scarce inputs in successive levels of the production and trafficking chain, and study how policies aimed at different stages affect prices and quantities in upstream and downstream markets. We use the model to study Plan Colombia, a large intervention aimed at reducing the downstream supply of cocaine by targeting illicit crops and blocking the transport of cocaine outside this source country. The model fits the main patterns found in the data, including the displacement of the drug trade to other source countries, the increase in coca crops’ productivity as a response to eradication, and the lack of apparent effects in consumer markets. We use a reasonable parametrization of our model to evaluate the cost-effectiveness of different policies implemented under Plan Colombia. We find that the marginal cost to the U.S. of reducing cocaine transacted in retail markets by one kilogram is $940,000, if it subsidizes eradication efforts; and $175,000, if it subsidizes interdiction efforts in Colombia.
We study how property crime distorts consumption decisions. Using an incomplete information model, we argue that consuming conspicuous goods reveals information to criminals seeking bountiful victims and increases the likelihood of being victimized. Thus, property crime reduces the consumption of visible goods, even when these cannot be directly stolen but simply carry information about a potential victim's wealth. We exploit the large decline in property crime in the U.S. during the 90s to test this mechanism. Using data from the U.S. Consumer Expenditure Survey from 1986 to 2003, we find that households located in states experiencing sharper reductions in property crime increased significantly their consumption of visible goods, even when these goods are not generally stolen, both in absolute terms and relative to other consumption goods. Our findings hold when we instrument the decline in property crime during the 90s using a variety of strategies.
In this paper we revisit the relationship between democracy, redistribution, and inequality. We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population; when it caters to the preferences of the middle class; or when it opens up disequalizing opportunities to segments of the population previously excluded from such activities, thus exacerbating inequality among a large part of the population. We then survey the existing empirical literature, which is both voluminous and full of contradictory results. We provide new and systematic reduced-form evidence on the dynamic impact of democracy on various outcomes. Our findings indicate that there is a significant and robust effect of democracy on tax revenues as a fraction of GDP, but no robust impact on inequality. We also find that democracy is associated with an increase in secondary schooling and a more rapid structural transformation. Finally, we provide some evidence suggesting that inequality tends to increase after democratization when the economy has already undergone significant structural transformation, when land inequality is high, and when the gap between the middle class and the poor is small. All of these are broadly consistent with a view that is different from the traditional median voter model of democratic redistribution: democracy does not lead to a uniform decline in post-tax inequality, but can result in changes in fiscal redistribution and economic structure that have ambiguous effects on inequality.
We provide robust evidence on the long debated Peltzman effect, by which individuals required to wear protective gear end up taking additional risks potentially offsetting the intended aim of the device. We take advantage of the fact that wearing a visor, a protective device in Ice Hockey, has not always been mandatory throughout the career of professional players.
We exploit within player variation in visor wearing induced by differences in league regulation to estimate the effect of mandatory visor wearing.
We find that wearing a visor substantially increases risky behavior reflected in an additional 0.18 penalty in minutes per game, as compared to the average 0.8 penalty in minutes in our sample. Results are not driven by characteristics of players, playing style, or other league differences. We also find a small negative impact on performance.
In this contribution we lay out a simple political economy theory that helps explain the current debate on prohibitionist drug policies in Latin America and their slow but sustained collapse as a strategy to confront illegal drug production and trafficking. Viewed from the perspective of producer and transit countries, prohibitionist drug policies are a transfer of the costs of the drug problem from consumer to producer and transit countries, where the latter are pushed to design and implement supply-reduction policies. The contribution shows how the low effectiveness and high costs of these policies have led the region to ask for an urgent and evidence-based debate about alternatives to strictly prohibitionist drug policies.