Will COVID-19 lead to greater automation?
Will firms invest in automation in order to deal with the COVID-19 induced work uncertainty? What if the pandemic induced decrease in aggregate demand also reduces the value of new investment in automation? This is the question that Leduc and Liu are answering in this paper.
They use a New Keynesian DSGE model with automation and labor market search frictions. Firms’ decision to automate depends: a) on the current and expected future worker productivity, which fluctuates due to labor-specific productivity shocks; and b) on whether the cost of automation lies below a threshold determined by the net benefit of automation. They find that:
- The technology-shifting effect dominates the recessionary
effect such that the automation probability increases with job uncertainty;
- Absent the automation channel, an uncertainty shock would lead to a much deeper recession, with a sharper increase in unemployment and a larger decline in inflation.
Can Pandemic-Induced Job Uncertainty Stimulate Automation?
Authors: Sylvain Leduc and Zheng Liu
From: Federal Reserve Bank of San Francisco
More reasons why COVID-19 could accelerate automation
- First, automation, robotics, modern information and communication technologies, and artificial intelligence have been incredibly useful in fighting the pandemic and alleviating its economic consequences. These technologies have allowed firms to continue to operate by facilitating social distancing in the workplace and by enabling remote work from home offices;
- Second, robots and smart technologies offer great potential for disease surveillance and contact tracing, diagnosing COVID-19 and other diseases without face-to-face contact;
- Third, supply chain and travel disruptions caused by COVID-19 might undermine the integration of economies and encourage self-reliant economic systems. Automation facilitates the reshoring of supply chains by keeping the cost structure low.
The macroeconomic effects of automation and the role of COVID-19 in reinforcing their dynamics
By: David Bloom, Klaus Prettner – Harvard University, Vienna University of Economics and Business
