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

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Abstract

We study the implications of automation for labor market fluctuations in a Diamond-Mortensen-Pissarides (DMP) framework that is generalized to incorporate 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, depressing equilibrium real wages in a business cycle boom. The option of automation also increases the value of a vacancy, raising the incentive for job creation, and thereby amplifying fluctuations in vacancies and unemployment relative to the standard DMP framework. Since automation improves labor productivity while muting wage increases, it implies a countercyclical labor income share, as observed in the data.

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  • Leduc, Sylvain & Liu, Zheng, 2019. "Robots or Workers? A Macro Analysis of Automation and Labor Markets," Working Paper Series 2019-17, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2019-17
    DOI: 10.24148/wp2019-17
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    Cited by:

    1. GuimarĂ£es, Luis & Gil, Pedro, 2019. "Looking ahead at the effects of automation in an economy with matching frictions," MPRA Paper 96238, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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