Working Papers

2019-17 | April 2021

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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. In the model, procyclical automation probability creates real wage rigidities that help amplify labor market fluctuations. We find that this automation mechanism is quantitatively important for explaining the large volatilities of unemployment and vacancies relative to that of real wages, a puzzling observation through the lens of standard business cycle 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