A Study of the effects of automation on labour

Abstract

I develop a task-based model to study the effects of automation on labour demand. I differentiate two kinds of technological innovations: those that allow machines to replace labour in more tasks, and those that entail an improved version of a previous machine. Aggregate output is produced combining complementary tasks. Innovations improving previous machines are always beneficial for workers, since they just have a productivity effect. On contrast, innovations extending automation to more tasks, besides of a productivity effect, have a displacement effect. I find that if tasks are complementary enough then, no matter how productive the new machines are, an extension of automation to more tasks will always decrease wages. Then, motivated by the importance of this productivity effect, I incorporate a second final good to my baseline model. For the case of Leontief preferences, I find that if the second good is sufficiently capital intensive, then the effects of automation on labour are worsened.