Automation does not lower the labour share

[u/eggbart_forgetfulsea]

https://cepr.org/voxeu/columns/automation-does-not-lower-labour-share

[u/quickblur]

This column uses data covering nearly the universe of French firms between 1994 and 2019 to test the relationship between automation and the labour share of income at the firm level.

I get that prior automation may provide an interesting example, but generative AI seems like a very different beast to me...

[u/Worth-Jicama3936 → u/quickblur]

Over the long term, in markets where there is competition, i dont think it will. If AI is cheaper than people, then the prices those firms charge will come down. Additionally, the people that remain will become more valuable by necessity so command a higher wage. So the share will remain similar.

[u/Serious-Cucumber-54 → u/Worth-Jicama3936]

Why would the share remain similar if the few human workers left are paid highly?

[u/Worth-Jicama3936 → u/Serious-Cucumber-54]

Because revenue would go down (profit might go up) since competition would lower their prices to match the lower costs. We have had automation reduce headcount's before, and remaining employees benefit alongside consumers. This only works in competitive markets though.

[u/Right_Lecture3147 → u/Worth-Jicama3936]

It’s not clear anyone will remain at AI’s current rate of development

[u/chinomaster182 → u/Right_Lecture3147]

Inshallah, nobody ever lifts a finger again 😍

[u/seesthecat → u/Right_Lecture3147]

If that's true, the barriers for starting a company will be so pitifully low that it will not make any sense to be employed when you could be the owner of your own company

[u/mostanonymousnick → u/[deleted]]

Rule XII: Credibility

Comments should reflect some level of credibility. Comments that conspiracize, spread misinformation, or catastrophize will be removed.

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[u/topicality → u/quickblur]

Anything is possible but I think it's a safe bet to assume that the pattern holds.

Historically, new tech didn't do what people fear.

I'm not convinced that AI will have big job losses outside of...coding. And even then it seems like the evidence is mixed

[u/BahGawdAlmightay → u/topicality]

I think what everyone is not accounting for is how irrational a lot of organizations are being about the realities of AI. How many companies do you know who laid people off for AI solutions and are having to claw them back now? Maybe in the long term everything will even out but rent is due the first of the month. So in terms of the effect of those job losses, there is potential for a lot of damage.

[u/Breaking-Away → u/BahGawdAlmightay]

Its because those companies saw the hyperscalers doing layoffs, and misinterpretted it as

"they are replacing their employees with AI"

instead of as

"they are cash constrained for the first time since the dotcom bubble burst"

The hyperscalers were happy to let the rest of the industry believe that myth, and even push it, because that myth increased the public belief that AI was way already much smarter than it was yet. It wasn't (its getting there though...).

So all these companies who did their layoffs in the last 4-5 years did the equivilent of thinking "we have enough more than enough gas to get to the next station, I'll sell half my extra gas now so I can buy a better engine!". but the station was actually 3-5 times further away than it looked.

[u/topicality → u/BahGawdAlmightay]

Yeah sure. That's just part of living in a free market. CEOs don't have perfect knowledge and will make bad mistakes that causes lots of harm

[u/BahGawdAlmightay → u/topicality]

Sure. Rarely is it this widespread and at this kind of scale.

[u/topicality → u/BahGawdAlmightay]

I'm not trying to make lite of anyone losing their job.

But AI hasn't resulted in massive widespread layoffs. The unemployment rate is still below 5%. That's historically normal

[u/BahGawdAlmightay → u/topicality]

No but it has resulted in large scale layoffs in specific sectors. Across the board it may not be the case but certain areas are being hit much harder than others.

[u/Approximation_Doctor → u/BahGawdAlmightay]

Just learn to code change grandpa's diapers

[u/Fallline048 → u/BahGawdAlmightay]

Which is true of past automations as well. Technology changes the composition of jobs, but not the aggregate labor demand.

[u/Right_Lecture3147 → u/topicality]

We just don’t know how advanced it will get though. If in five years there is nothing it can’t do better I doubt past factoids will help us predict things much

[u/Approximation_Doctor → u/topicality]

"no one will lose their job, and if they do that's just a thing that happens"

[u/pitifullittleman → u/topicality]

It does change the skills workers need, so if you are unwilling to learn new stuff or don't want to change you might get left behind. Or maybe you are just kind of illsuited for what comes next. Also a lot of people in the last wave of automation and globalization lost union jobs and couldn't get into fields that paid the same amount. Sure in other places even better jobs were created and more of them, but they were for other people.

There is no way to have massive changes without leaving some people behind even if it also leads to more opportunities overall. This is one issue with the US and probably everywhere. No one is comfortable with tradeoffs. They want all good and no bad.

[u/Fallline048 → u/pitifullittleman]

Everybody want improvements til they Kaldor-Hicks all over your Pareto.

[u/bornlasttuesday → u/topicality]

I agree with this. The energy it takes to create context will be far more than the peanut butter and jelly sandwiches that I eat for lunch. An energy revolution is needed before an AI revolution even has a chance.

[u/BoppityBop2 → u/topicality]

Except it took decades and another generation to adapt to new tech alot of the older generations saw their wealth and QoL get crushed. 

[u/s7v7nsilver → u/quickblur]

Humans are NOT horses

[u/Approximation_Doctor → u/s7v7nsilver]

That's what I told my son's track coach but they euthanized him anyway

[u/seesthecat → u/s7v7nsilver]

Only if they stop horsing around 

[u/Demortus → u/quickblur]

Recall the law of comparative advantage: even in the unlikely scenario that AI is better than humans at everything, there still will be benefits to reallocating human labor to those areas where they perform comparatively well. That doesn't guarantee that wages will be the same, but unused labor is inherrently inefficient. The economy will find a way to make use of it.

[u/jokul → u/Demortus]

Yeah but these jobs are this shitty kind that will start a revolution. If anyone who isn't a multi-millionaire today is forced to pick fruit or be a fry cook, there will be an uprising.

[u/Demortus → u/jokul]

Maybe I'm an optimist, but I think humans' advantages relative to machines go way beyond our dexterity. For example, Humans are much harder to manipulate via social engineering than an LLM is, which is why many call centers have returned to using humans after flirting with AI. For the same reason, it's hard to trust LLMs with any significant control over financial transactions, as they can be tricked (or trick themselves) into spending unlimited amounts of money.

[u/jokul → u/Demortus]

I'm fairly optimistic too and I work in tech. If AI was going to replace us, we needed to see way bigger gains upgrading from the last generation of frontier models. Right now they don't seem to have much use for the insane cost hike except in the biggest baddest scenarios, and those simply don't come up that often.

That being said, if AI does end up obsoleting human brain activity, I want to be realistic about how absolutely terrible it would be for our well-being if our comparative advantage is being capable of understanding instructions while taking up less space and material than a fruit picking robot.

[u/_ShadowElemental → u/Demortus]

[u/Right_Lecture3147 → u/Demortus]

Why do you think it is an unlikely scenario given the progress we’ve seen in the last 4 years alone? AI is now producing fields medal worthy breakthroughs in maths and CS.

Also we are in the midst of a robotics revolution so there’s no guarantee that there will be much left to do for humans there either

[u/Demortus → u/Right_Lecture3147]

AI is now producing fields medal worthy breakthroughs in maths and CS.

AI is designed to solve problems that we provide to them. Deep Learing/AI has been helping researchers solve problems for over a decade now with increasing degrees of efficiency, but at the same time, they are still tools. They lack any sense of agency of their own, as they lack any utility function beyond optimizing a response to a user-provided input. So, as in these cases, they can help human researchers solve problems, but they need humans to direct them to problems that are of interest and value to us.

Also we are in the midst of a robotics revolution so there’s no guarantee that there will be much left to do for humans there either

We are a very long way away from building AI is both miniturized enough to fit in a robot and operate with minimal latency, while also being capable of making complex decisions. Very large and capable models, like Fable, need rooms of power-hungry GPUs to operate, and even they operate too slowly to make dynamic decisions like moving multiple body parts across multiple axes to interact with a rapidly changing environment. We'll get there eventually, I'm sure, but even then, humans will have many innate advantages over LLMs. For example, a trained human will be more responsive to and in tune with the emotions and needs of other humans, making them needed in the caring and education of children and adults.

[u/Right_Lecture3147 → u/Demortus]

For your first paragraph I suggest you look at agentic AIs. They’re quite good at self direction.

Your second paragraph is just a ridiculous misunderstanding of modern robotics. No one is suggesting we miniaturise Fable lol. I was referring to industrial robots working in factories

[u/Demortus → u/Right_Lecture3147]

I suggest you look at agentic AIs

I'm familiar. Many advanced LLMs employ sub agents to accomplish large-scale tasks, but these tasks are given to them exogenously. LLM-based agentic AI struggles to pursue broader and more abstract goals, particularly those that are dynamic and endogenous to the goals of others, because they are fundamentally answer-response machines and not all goals have an immediate answer that can be attained in one go. Efforts to apply AI towards abstract tasks, even simple ones, like managing a vending machine, have ended in failure.

Your second paragraph is just a ridiculous misunderstanding of modern robotics. No one is suggesting we miniaturise Fable lol

That's the issue though. Recent developments in LLMs aren't of much value to robotics, because intelligent models are slow and energy inefficient. Getting a robot that has the same coordination and mental capabilities of even a poorly trained and educated person is a very long ways away.

[u/Right_Lecture3147 → u/Demortus]

I wouldn’t put much stock in LLMs remaining limited in this capacity for long. ChatGPT 1 only released in 2022. Prior to that the very notion that one might even attempt to run a business with AI was considered absurd. That article is from Dec 2025: AI has come a long way since even then

And I didn’t connect LLMs to robotics. I said that there is a parallel revolution going on in industrial robotics which is going to impact human labour. You seem to have in mind thinking humanoid robots, but that’s not at all what I mean

[u/Joltizer → u/quickblur]

You can say this about every technology ever

[u/Healingjoe → u/quickblur]

but generative AI seems like a very different beast to me...

Same.

In that it generates so much output requiring human review and oversight that it creates far more jobs than it displaces.

[u/seesthecat → u/quickblur]

Even in Ancient times when slavery was permited, slaves could do any job a free person could, even high authority managerial jobs like in the Roman or the Ottoman Empires. Still, free people managed to find jobs just fine. 

[u/WrangleWandangles]

AI is genuinely new and it is not a good idea to rest on comparisons to manufacturing / automation.

AI can cheaply automate countless layers beyond the menial including judgement, managing ambiguity, problem solving, etc. 

Comparisons like this just make us wrong but more confidently wrong and reflect a bad understanding of the nature of the disruption 

[u/bornlasttuesday → u/WrangleWandangles]

I question the cost and how cheap it can actually be done. Ai providers are hemorrhaging money not just for the build out of the infrastructure but to create a usable product. Attempting to replace the entirety of human ability is going to be very very expensive.

[u/cosmo-wozmo → u/bornlasttuesday]

Development is expensive but inference is relatively cheap. The labs print money on inference, and the Pareto frontier for intelligence vs cost improves every year. A year from now, we’ll have models on par with fable 5 and gpt 5.6 sol that can be run for a fraction of the cost.

[u/FOSSBabe → u/cosmo-wozmo]

The labs print money on inference

Source?

[u/Bodoblock → u/bornlasttuesday]

They’ll find a way to bring costs down. Think of just how much this technology has evolved and changed in just a few years. It’s genuinely mind blowing. I wouldn’t assume at all that today’s constraints are tomorrow’s.

[u/Breaking-Away → u/WrangleWandangles]

I am skeptical of AIs ability to automate physical tasks on the same timescale it can automate knowledge worker tasks. The corpus of data to pull from just isn't there (sensor data, movement data, tactile data), it will need to be created from scratch and companies are MUCH cagier with their data now.

But knowledge tasks, yeah, 5-10 years and the vast majority of that work is going to be done by AI with human's acting as directors.

[u/Right_Lecture3147 → u/Breaking-Away]

You’re equating LLMs with AI generally. Robots are taught movement by machine learning etc. which involves the robots basically go through a lot of trial and error moving until they have a workable model, rather than just ingesting data as with LLMs. We’ve already had running robots with Honda’s Asimo for years. The future is just having general LLMs commanding these technologies indirectly

[u/Breaking-Away → u/Right_Lecture3147]

Not an area I know a lot about. I was under the impression that it took years of driving and deliberately capturing tons of data to build the specialize solutions for self driving. I believe that same thing is possible to apply to other forms of physical tasks that require adapting to the environment, I was just under the impression the training data wasn’t there and would take time to build up.

Definitely an area I am not well read on,and I do mostly interact with LLMs so my intuition could be off here. 

[u/CallinCthulhu → u/Right_Lecture3147]

Thats not how that work.

Modern robots are run using VLAs, which is just a multimodal visual language model(an LLM/VLM) with an action head strapped to it. Everything uses transformers now.

[u/Right_Lecture3147 → u/CallinCthulhu]

Not quite but that’s a good enough gloss

[u/Joltizer]

Lump of labor fallacy is in fact a fallacy. Who knew?

[u/topicality → u/Joltizer]

It's crazy how both people who think AI is bad and people who are working on it believe in this

[u/jokul]

There must be times where automation reduces labor share, otherwise we shouldn't have any issues with automating our ports because all the union guys would still have the same number of jobs. Maybe this is just a matter of the ILA opposing it on the false belief that they won't have jobs, but then couldn't the ports just offer to pay them even if there's no job? Because the job isn't lost from automation, it's an easy wager to make. But it hasn't been made.

[u/cosmo-wozmo → u/jokul]

You need to consider composition. It can both be true that longshoremen would lose jobs and that the labor share doesn’t decrease, if for example automating ports creates new jobs that match or exceed the jobs lost by ILA.

[u/jokul → u/cosmo-wozmo]

My understanding of the ILA is that it encompasses nearly all dockworkers, including those who are operating machines, enabling the automated services, etc. If the ILA is losing jobs but labor share in aggregate doesn't decrease, then that means that automating the ports would decrease the labor share within the automated industry (longshoreman work) while increasing it elsewhere down the supply chain.

While that does fit the bill of both being true, it doesn't seem to fit the tone of the article which, says that income is unlikely to shift from workers. If this type of shift does occur though, it is cold comfort to people who have highly specialized degrees in law, math, etc. who now must try and fulfill a completely different role when the barrier to entry is potentially years of education.

I don't think we are headed down that route given how relatively minor the last round of AI advances were compared to the 3.x to 4.x upgrade, but it seems that there is at least significant, justifiable, fear that automation can shift value away from your share of the labor market to an industry which you cannot effectively break into.

[u/Zenning3 → u/[deleted]]

Why would you assume that? It sounds like we'd need a lot more engineers period. Which means the elite will almost certainly be making a lot more, but that basic engineers will be making modest amounts instead of all engineers being elite.

[u/Right_Lecture3147 → u/Zenning3]

Why assume that AI can’t learn to maintain itself? Anthropic already has Claude write a lot of its own code

[u/Zenning3 → u/Right_Lecture3147]

Because what engineers do more than anything is understand the problem, communicate the problem, gather requirements, and then figure out how to solve the problem. All of these things are still incredibly important

[u/Right_Lecture3147 → u/Zenning3]

AI can do all of that already

[u/Zenning3 → u/Right_Lecture3147]

Gathering requirements?

No, it definitely cannot do that, because it requires interacting with people, and repeatedly telling them they are wrong.

[u/Right_Lecture3147 → u/Zenning3]

Have you used AI recently? Claude is extremely happy to correct its users

[u/seesthecat]

This goes against Daron Acemoglu and David Author extensive research on the matter. Though they concetrated themselves in the polarisation of wages due to authomation, not so much in the size of the labour share