Fact of the Week: Increasing Investment in Capital and Automation Would Help, Rather Than Hurt, Manufacturing Workers
Source: Philippe Aghion et al., “Modern Manufacturing Capital, Labor Demand and Product Market Dynamics: Evidence from France,” Documents de Travail de l'Insee - INSEE Working Papers, No 2023/12 (May 2023): 1-49.
Commentary: In a recent working paper for the National Institute of Statistics and Economic Studies, Philippe Aghion et al. analyzed the link between capital investment with employment and sales in the manufacturing sector. The study examined data on manufacturing in France at the industry, firm, and plant levels between 1995 and 2017 for 255 industries, 1,599 firms, and 2,773 plants. The authors explain that there is a positive relationship between investment in automation and employment at all three levels studied. The study also found that the relationship was even stronger for industries that experience greater competition from abroad.
While the authors state that some relatively narrow groups of workers might need assistance in transitioning and training, they conclude that the productivity effects significantly balance any negative employment effects. The study attributes the positive relationship between investment and employment to the positive effects on scale from higher productivity. Greater investment allows the firms to increase their sales and increase the scale of their operations. This, in turn, means that firms begin to hire more workers because of their increased scale of production. Additionally, automation did not appear to have an effect on wage inequality within firms. Taken together, these findings counter the notion that automation would result in widespread displacement of workers.