Looking ahead at the effects of automation in an economy with matching frictions

Guimarães, Luis and Gil, Pedro (2019): Looking ahead at the effects of automation in an economy with matching frictions.

Abstract

We study the effects of an automation-augmenting shock in an economy with matching frictions and endogenous job destruction. In the model, tasks can be produced by workers or by machines, but workers have a comparative advantage in producing advanced tasks. Firms choose the input at the time of entry. And according to the evolution of the workers’ comparative advantage, some firms using labor prefer to fire the worker and automate the task. In our model, an automation-augmenting shock reduces the labor share, increases job creation, and increases job destruction. The effects on employment depend on how rapidly workers may lose their comparative advantage: an automation-augmenting shock increases employment in slow-changing environments but catastrophically reduces it in rapid-changing ones.

• Item Type: MPRA Paper
• Language: English
• Keywords: Automation; Employment; Labor-Market Frictions; Technology Choice
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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