"Is Automation Labor-displacing? Productivity growth, employment, and the Labor Share"

by Autor, D; Salomons, A (2018)

Abstract

Many technological innovations replace workers with machines, but this capital-labor substitution need not reduce aggregate labor demand because it simultaneously induces four countervailing responses: own-industry output effects; cross-industry input–output effects; between-industry shifts; and final demand effects. We quantify these channels using four decades of harmonized cross-country and industry data, where we measure automation as industry-level movements in total factor productivity (TFP) that are common across countries. We find that automation displaces employment and reduces labor's share of value-added in the industries in which it originates (a direct effect). In the case of employment, these own-industry losses are reversed by indirect gains in customer industries and induced increases in aggregate demand. By contrast, own-industry labor share losses are not recouped elsewhere. Our framework can account for a substantial fraction of the reallocation of employment across industries and the aggregate fall in the labor share over the last three decades. It does not, however, explain why the labor share fell more rapidly during the 2000s

Key Passage

Whether technological progress ultimately proves employment- or labor-share-displacing depends proximately on two factors: how technological innovations shape employment and labor’s share of value-added directly in the industries where they occur; and how these direct effects are augmented or offset by employment and labor-share changes elsewhere in the economy that are indirectly spurred by these same technological forces. The first of these phenomena—the direct effect of technological progress on employment and labor-share in the specific settings in which it occurs—is often readily observable, and we suspect that observationof these direct labor-displacing effects shapes theoretical and empirical study of the aggregate impact of technological progress. The indirect effects of technological progress on these same outcomes, however, are likely more challenging to observe and quantify, and hence may receive short shrift in economic analysis and in the wider public debate. (p.4)

Keywords

Automation, Labor Replacement, Employment, Job Losses, Technology

Themes

Employment, Economics, Automation

Links to Reference

• https://dspace.mit.edu/bitstream/handle/1721.1/124228/w24871.pdf?sequence=2&isAllowed=y
• https://www.nber.org/papers/w24871
• https://scholar.google.ca/scholar?cluster=6883356978225521816&hl=en&as_sdt=0,5&sciodt=0,5

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