Robots and reshoring: Evidence from Mexican labor markets

Robots in advanced economies have the potential to reduce employment in offshoring countries by fueling reshoring. Using robots instead of humans for production may lower the relative cost of domestic production and, in turn, reduce demand for imports from offshoring countries. I analyze the impact of robots on employment in an offshoring country, using data from Mexican local labor markets between 1990 and 2015. Recent literature estimates the effect of robots on local employment by regressing the change in employment on exposure to domestic robots in local labor markets. I construct a similar measure of exposure to foreign robots, based on the initial geographic distribution of export-producing employment across industries, industry-level robot adoption in the US, and a US industry's initial reliance on Mexican imports. To purge results from endogeneity, I use robot adoption in the rest of the world and an index of offshoring as instruments for robot adoption in the US and the share of Mexican imports, respectively. Using these instruments, I show that US robots have a sizeable negative impact on employment in Mexico. This negative effect is stronger for men than for women, and strongest for low-educated machine operators in the manufacturing sector. Consistently with reshoring as a mechanism, I find that the employment effect is mirrored in similarly large reductions in Mexican exports and export-producing plants.