Working Papers

2019-17 | November 2020

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Robots or Workers? A Macro Analysis of Automation and Labor Markets

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We argue that the threat of automation weakens workers' bargaining power in wage negotiations, dampening wage adjustments and amplifying unemployment fluctuations. We make this argument based on a quantitative business cycle model with labor market search frictions, generalized to incorporate automation decisions and estimated to fit U.S. time series. We find that the automation channel is quantitatively important for explaining the sluggish wage growth and persistent declines in unemployment in the decade prior to the Covid-19 pandemic. More broadly, we show that the automation mechanism helps account for the large fluctuations in unemployment and vacancies relative to that in real wages, a puzzling observation through the lens of standard models. We present some micro-level empirical evidence supporting our model's mechanism.

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Article Citation

Leduc, Sylvain, and Zheng Liu. 2019. "Robots or Workers? A Macro Analysis of Automation and Labor Markets," Federal Reserve Bank of San Francisco Working Paper 2019-17. Available at https://doi.org/10.24148/wp2019-17