Working Papers

2019-17 | January 2020

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

Author(s):

We argue that automation has contributed to sluggish wage growth despite historically low unemployment rates in the most recent decade. This argument is based on a quantitative general equilibrium framework that incorporates automation decisions. If a job opening is not filled with a worker, a firm can choose to automate that position and use a robot instead of a worker to produce output. The threat of automation strengthens the firm's bargaining power against job seekers in wage negotiations, suppressing wages in economic expansions. The option to automate also raises the value of a vacancy, boosting the incentive for job creation, and thereby amplifying fluctuations in vacancies and unemployment. Our mechanism helps account for the large fluctuations in unemployment and vacancies relative that in real wages, a puzzling observation through the lens of the standard labor search models.

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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