Automation, population aging, and growth

Abstract: In this paper we analyze the effects that automation and population aging exert on economic growth. We do that by means of an Overlapping Generations Model (Diamond, 1965) in which automation capital is taken into account in the production structure of the economy. The framework we use was first created by Gasteiger and Prettner (2017) and we further develop it by adding a new feature: a pay-as-you-go pension system. The model predicts that automation could produce the collapse of the economy if the latter and labour are perfect substitutes. However, after simulating seven different scenarios, we find that restricting the amount of investment in automation and ensuring a stable or growing population, long-run growth can be achieved.