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Robot adoption and inflation dynamics

Author

Listed:
  • Henrique S. Basso

    (BANCO DE ESPAÑA AND CEMFI)

  • Omar Rachedi

    (ESADE, UNIVERSITAT RAMON LLULL)

Abstract

Leveraging variation in robot adoption across U.S. metropolitan areas, we document that automation reduces the sensitivity of inflation to unemployment. To rationalize this finding, we build a New Keynesian model with search frictions in the labor market where robot adoption flattens the Phillips curve. The key channel is the option value of automation: the threat of automating labor tasks alters workers’ effective bargaining power, muting the wage sensitivity to unemployment. We validate the relevance of this channel in the data by showing that robot adoption reduces the sensitivity of inflation to unemployment relatively more in highly unionized metropolitan areas.

Suggested Citation

  • Henrique S. Basso & Omar Rachedi, 2025. "Robot adoption and inflation dynamics," Working Papers 2536, Banco de España.
    • Handle: RePEc:bde:wpaper:2536
    DOI: https://doi.org/10.53479/40845
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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