Working Paper

Automation, Bargaining Power, and Labor Market Fluctuations

Abstract: We argue that the threat of automation weakens workers' bargaining power in wage negotiations, dampening wage adjustments and amplifying unemployment fluctuations. We make this argument based on a quantitative business cycle model with labor market search frictions, generalized to incorporate automation decisions and estimated to fit U.S. time series. In the model, procyclical automation threats create real wage rigidity that amplify labor market fluctuations. We find that this automation mechanism is quantitatively important for explaining the large volatilities of unemployment and vacancies relative to that of real wages, a puzzling observation through the lens of standard business cycle models.

Keywords: automation; bargaining power; unemployment; wages; productivity; business cycles;

JEL Classification: E32; J63; J64;

https://doi.org/10.24148/wp2019-17

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2022-05-18

Number: 2019-17

Note: The paper was previously circulated under the title “Robots or Workers? A Macro Analysis of Automation and Labor Markets", published July 18, 2019.