Given only “neutral” factor-augmenting technology, to reliably get the result that the increase in substitutability between capital and labor lowers wages, we need
decreasing returns to scale and
substitutability great enough that the decreasing returns to scale outweighs the fact that effective capital is now plentiful and maybe complementing labor a little bit. In the extreme, as shown above, decreasing returns to scale + perfect substitutability lowers wages.
Great! I do think the case of constant returns to scale with different uses of capital is also important though, as is the case of constant or mildly decreasing returns to scale with just a little bit of complementarity.
I feel like the overall takeaway is very different though. I’ve not fully understood the details in either argument so this is a little vibes based. You seemed to be arguing that below subsistence wages were fairly likely while here it seems to be that even falling wages require a weird combination of conditions.
I think the conditions that support eventual below subsistence wages are fairly plausible, which is why I argued that the overall outcome is plausible. It appears Phillip Trammell either believes these conditions are less likely than I do, or decided to temporarily suspend judgement about their likelihood for the purposes of writing this post. Either way, while I agree the emphasis of our posts is different, I think the posts are still consistent with each other in a minimal sense.
I might be more pessimistic than you about wages on balance, since I would argue for the importance of the “reallocation of capital from labor-augmenting to non-labor-augmenting uses” point, which if strong enough could lower wages through a channel other than the DRS+PS one you focus on.
I’ll note that these are almost exactly the same conditions that I outlined in my recent article about the effects of AGI on human wages. It seems we’re in agreement.
Great! I do think the case of constant returns to scale with different uses of capital is also important though, as is the case of constant or mildly decreasing returns to scale with just a little bit of complementarity.
I feel like the overall takeaway is very different though. I’ve not fully understood the details in either argument so this is a little vibes based. You seemed to be arguing that below subsistence wages were fairly likely while here it seems to be that even falling wages require a weird combination of conditions.
What have I misunderstood?
I think the conditions that support eventual below subsistence wages are fairly plausible, which is why I argued that the overall outcome is plausible. It appears Phillip Trammell either believes these conditions are less likely than I do, or decided to temporarily suspend judgement about their likelihood for the purposes of writing this post. Either way, while I agree the emphasis of our posts is different, I think the posts are still consistent with each other in a minimal sense.
Right, I’m just not taking a stand here.
I might be more pessimistic than you about wages on balance, since I would argue for the importance of the “reallocation of capital from labor-augmenting to non-labor-augmenting uses” point, which if strong enough could lower wages through a channel other than the DRS+PS one you focus on.
Thanks, that’s very useful for me trying to follow but not that deep in the models!