Tasks, technology, and factor prices in the neoclassical production sector
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Tasks, technology, and factor prices in the neoclassical production sector Andreas Irmen1,2 Received: 25 June 2019 / Accepted: 30 May 2020 / Published online: 20 June 2020 Ó Springer-Verlag GmbH Austria, part of Springer Nature 2020
Abstract This paper introduces tasks into the neoclassical production sector. Competitive firms choose the profit-maximizing amounts of factor-specific tasks that determine their factor demands and output supplies. We show that the effect of factor-augmenting technical change on relative and absolute factor prices can be decomposed into a productivity effect and a task-demand effect of opposite sign. These effects appear since the novel task-based approach distinguishes between the demands for tasks and the demands for factors. This perspective provides a new intuition for the emergence of relative and absolute factor biases and the role of the elasticity of substitution. Keywords Technical change Factor prices Factor-specific tasks Neoclassical production
JEL Classification O33 O41
1 Introduction The provision of goods and services requires tasks to be accomplished by the factors of production. In other words, what matters in the process of production is not the mere presence of factors but what they do. The present paper accounts for this observation and develops a novel interpretation of the neoclassical production sector & Andreas Irmen [email protected] 1
Department of Economics and Management, Faculty of Law, Economics and Finance, University of Luxembourg, 6, Rue Richard Coudenhove-Kalergi, L-1359 Luxembourg, Luxembourg
2
CESifo, Munich, Poschingerstr. 5, 81679 Munich, Germany
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A. Irmen
where capital and labor perform factor-specific tasks to produce output. A task may be thought of as a unit of work activity that contributes to the production of output. The task-based interpretation of the neoclassical production sector sheds new light on the intricate relationship between factor-augmenting technical change and relative and absolute factor prices. In particular, we establish that the effect of factor-augmenting technical change on relative and absolute factor prices can be decomposed into a productivity effect and an effect on the demand for tasks, henceforth referred to as the task-demand effect. These effects appear since the taskbased approach distinguishes between the demands for tasks and the demands for factors. This perspective provides a new intuition for the emergence of relative and absolute factor biases and the role of the elasticity of substitution. The findings of the present paper are derived in the following steps. Section 2 introduces tasks into the neoclassical production sector, defines the competitive equilibrium, and provides a detailed interpretation of the notion and the modelling of tasks. The novel features include a production function defined over factor specific tasks and input coefficients that provide the link between each task and the required amount of the factor that accomplish
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