Automation and Labor Demand in European Countries: A Task-based Approach to Wage Bill Decomposition
Automation and Labor Demand in European Countries: A Task-based Approach to Wage Bill Decomposition

Summary/Abstract: To understand the evolution of labor demand in European countries in the context of automation and other emerging technologies, we apply the decomposition developed by Acemoglu and Restrepo (2019) to European data. At the center of this framework is the task content of production – measuring the allocation of tasks to factors of production. By creating a displacement effect, automation shifts the task content of production against labor, while the introduction of new tasks in which labor has a comparative advantage increases the labor demand via the reinstatement effect. Contrary to the US experience, in a group of 10 European countries, the displacement effect of automation was completely counterbalanced by technologies that create new tasks in which labor has a comparative advantage. Furthermore, our cross-country comparison reveals a substantial variation across countries. The cumulative change in the task content of production ranges from 6.2% in the United Kingdom to a strong negative effect, namely –7.6%, in Sweden. A part of the differences can be explained by the rate of adoption of industrial robots. We document a strong unconditional relationship between the change in robot density and the displacement effect. However, differences in the reinstatement effect remain unexplained.

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