The Effects of Automation on Labor Demand

In this article, we survey the recent literature and discuss two contrasting views on the impacts of automation on labor demand. A first view predicts that firms that automate reduce employment, even if this may ultimately result in job creations taking advantage of the lower equilibrium wage induced by job destructions. A second approach emphasizes the market size and business stealing effects of automation. Automating firms become more productive, which enables them to lower their quality-adjusted prices, and therefore to increase the demand for their products. The resulting increase in scale translates into higher employment by automating firms, potentially at the expense of their competitors through business stealing. Drawing from our empirical work on French firm-level data and a growing literature covering multiple countries, we provide empirical support for this second view: automation has a positive effect on labor demand at the firm level, which remains positive at the industry level as it is not fully offset by business stealing effects. We discuss the implications of these results for the taxation of automation technologies such as robots.