Question

In a recent article, the Wall Street Journal noted that firms are increasing investment in response to the recently passed tax bill. Part of the tax bill allows the immediate 100% expensing of capital investments, in other words, firms can immediately deduct the full cost of their investments. Thinking about the relative prices of labor and capital, explain why the tax bill may speed the process of automation in the U.S. workforce.

Answer 1

The tax bill may speed the process of automation in the U.S. workforce because the new bill signed by the president will reduce the cost on the purchase of new equipment which will make the machinery cheaper than the hiring labor. So due to new bill the cost of production will decrease if producers will use more machinery and less labors it will lead to replacement of labor by machines. The tax bill allows the immediate 100% expensing of capital investments which will decrease the taxes for investors and they will earn more profit so they will prefer more machinery than workers which will increase the automation of labors.