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Not a Typical Firm: Capital–Labor Substitution and Firms' Labor Shares

Joachim Hubmer & Pascual Restrepo

American Economic Journal: Macroeconomics2026https://doi.org/10.1257/mac.20230325article
AJG 4ABDC A*
Weight
0.50

Abstract

The US labor share has declined, especially in manufacturing and retail. Yet the labor share of a typical firm in these sectors has risen. We introduce a model where firms incur fixed costs to automate tasks. A decline in the price of capital goods used for automation reproduces the observed patterns: large firms automate tasks, reducing the aggregate labor share, while the median firm continues to operate a labor-intensive technology. When calibrating the automation fixed costs to match the observed adoption heterogeneity, the model generates the aggregate and firm-level facts quantitatively in response to lower capital prices, especially in manufacturing. (JEL D21, D33, E25, L60, O32)

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https://doi.org/https://doi.org/10.1257/mac.20230325

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@article{joachim2026,
  title        = {{Not a Typical Firm: Capital–Labor Substitution and Firms' Labor Shares}},
  author       = {Joachim Hubmer & Pascual Restrepo},
  journal      = {American Economic Journal: Macroeconomics},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1257/mac.20230325},
}

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Not a Typical Firm: Capital–Labor Substitution and Firms' Labor Shares

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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