The Technology-Employment Trade-Off: Automation, Industry, and Income Effects

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Employment and technology: Creative creation or creative destruction? An asymmetric analysis

“…Kindberg‐Hanlon (2021) demonstrates that labour‐substituting technologies can produce overall job increases (including other sectors, such as services, agriculture, etc. ), but they are likely to be accompanied by an even greater decline in employment shares in the historically most affected sector, industry.…”

“…It is widely known that when income increases, the demand for industrial products decreases relative to the increase in service demand (Comin et al, 2015;Rodrik, 2016). The overall employment rate would increase and the rate of decline in industrial employment would be faster in economies that have the skill base to match the demand for workers in the other sectors (Kindberg-Hanlon, 2021).…”

“…A fast‐automation scenario might result in up to 44% of employment being affected in the United States, which is roughly consistent with the 47% estimate of Frey and Osborne (2017). In industrialized economies, a typical 10% increase in worker productivity causes a 2% decrease in employment (Kindberg‐Hanlon, 2021). In the first year after a positive technological shock, 90% of advanced countries see a decline in employment, about 50% of advanced economies see statistically significant employment declines, which are generally persistent in many economies, lasting 10 years on average before the effect diminishes (Kindberg‐Hanlon, 2021).…”

“…In industrialized economies, a typical 10% increase in worker productivity causes a 2% decrease in employment (Kindberg‐Hanlon, 2021). In the first year after a positive technological shock, 90% of advanced countries see a decline in employment, about 50% of advanced economies see statistically significant employment declines, which are generally persistent in many economies, lasting 10 years on average before the effect diminishes (Kindberg‐Hanlon, 2021). Middle‐ and low‐skilled industrial sector jobs' share of employment decreased by roughly 10 percentage points between 1993 and 2010 in a survey of 16 European economies (Goos et al, 2014).…”

“…These arguments are made extensively in the literature on sectoral and microeconomic levels. Few studies address the possible effects of new technologies on labour markets using a comprehensive macroeconomic approach (Exceptions are Peralta‐Alva and Roitman (2018) and Kindberg‐Hanlon (2021)). This essay contributes to closing that gap.…”