Is automation labor-displacing?: Productivity growth, employment, and the labor share

Abstract

Is automation a labor-displacing force? This possibility is both an age-old concern and at the heart of a new theoretical literature considering how labor immiseration may result from a wave of “brilliant machines,” which is in part motivated by declining labor shares in many developed countries. Comprehensive evidence on this labor-displacing channel is at present limited. Harnessing a model from Acemoglu and Restrepo (2018), we first outline the various channels through which automation impacts labor’s share of output. We then turn to empirically estimating the employment and labor share impacts of productivity growth—an omnibus measure of technological change—using data on 28 industries for 18 OECD countries since 1970. Our main findings are that although automation has not been employment-displacing, it has reduced labor’s share in value added. We disentangle the channels through which these impacts come about by considering both the effects occurring within the advancing industry and spillovers onto the industry’s suppliers and customers, and by separately estimating the wage, output, and price responses to automation. Our estimates highlight that the labor share-displacing effects of productivity growth, which were absent in the 1970s, have become more pronounced over time, largely because of a weakening wage response. This finding is consistent with automation having become less labor-augmenting over time.