Can Pandemic-Induced Job Uncertainty Stimulate Automation?

By Sylvain Leduc and Zheng Liu

http://d.repec.org/n?u=RePEc:fip:fedfwp:87950&r=dge

The COVID-19 pandemic has raised concerns about the future of work. The pandemic may become recurrent, necessitating repeated adoptions of social distancing measures (voluntary or mandatory), creating substantial uncertainty about worker productivity. But robots are not susceptible to the virus. Thus, pandemic-induced job uncertainty may boost the incentive for automation. However, elevated uncertainty also reduces aggregate demand and reduces the value of new investment in automation. We assess the importance of automation in driving business cycle dynamics following an increase in job uncertainty in a quantitative New Keynesian DSGE framework. We find that, all else being equal, job uncertainty does stimulate automation, and increased automation helps mitigate the negative impact of uncertainty on aggregate demand.

Are the robots going to take over? It all depends how you define a robot, at least in this kind of modelling. Leduc and Liu view them as perfect substitutes for labor without its imperfections, such as catching a virus. However, robots can also catch a virus, be poorly qualified for particular jobs, or be difficult to move to another location. In other words, they face the same kind of frictions that are valid for the human workforce. With this in mind, they are not a miracle solution, and there is substantial uncertainty from investing in them.

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