Fact of the Week: A 1 Percent Increase in the Use of Robots Eventually Leads to a 0.1 Percent Increase in Wages and a 0.06 Percent Increase in Employment

Source: Tiago Neves Sequeira, Susana Garrido, and Marcelo Santos, “Robots are not always bad for employment and wages,” Centre for Business and Economics Research (CeBER), University of Coimbra, working paper No. 16, 2020.

Commentary: Contrary to popular perceptions, robots can have a positive effect on employment and wages. Three Brazilian economists recently analyzed data on U.S. commuting zones from 1990 to 2007 and found that robots initially serve as a substitute for labor, as they can perform the same task more efficiently than labor could, but that initial effect is more than cancelled out over time, as continued productivity gains drive growth, which produces more employment and higher wages. Specifically, the researchers found that a 1 percent increase in the use of robots leads to a short-run drop in wages of 1.7 percent and a decrease in employment of 1.04 percent, and then to a long-run wage increase of 0.1 percent and employment increase of 0.06 percent. The effects of robots on wages and employment can thus be said to have a “U shape”—lowering wages and employment initially, but with a diminishing impact over time, and then driving higher wages and more employment.