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Racing With or Against the Machine? Evidence from Europe

67 Pages Posted: 29 Jul 2016  

Terry Gregory

Centre for European Economic Research (ZEW)

Anna Salomons

Utrecht University - Utrecht University School of Economics; KU Leuven - Center for Economic Studies

Ulrich Zierahn

Centre for European Economic Research (ZEW) - Labour Markets, Human Resources and Social Policy Department

Date Written: July 15, 2016

Abstract

A fast-growing literature shows that technological change is replacing labor in routine tasks, raising concerns that labor is racing against the machine. This paper is the first to estimate the labor demand effects of routine-replacing technological change (RRTC) for Europe as a whole and at the level of 238 European regions. We develop and estimate a task framework of regional labor demand in tradable and non-tradable industries, building on Autor and Dorn (2013) and Goos et al. (2014), and distinguish the main channels through which technological change affects labor demand. These channels include the direct substitution of capital for labor in task production, but also the compensating effects operating through product demand and local demand spillovers. Our results show that RRTC has on net led to positive labor demand effects across 27 European countries over 1999-2010, indicating that labor is racing with the machine. This is not due to limited scope for human-machine substitution, but rather because sizable substitution effects have been overcompensated by product demand and its associated spillovers. However, the size of the product demand spillover – and therefore also RRTC's total labor demand effect – depends critically on where the gains from the increased productivity of technological capital accrue.

Keywords: Labor Demand, Routine-Replacing Technological Change, Tasks, Local Demand Spillovers

JEL Classification: E24, J23, J24, R23

Suggested Citation

Gregory, Terry and Salomons, Anna and Zierahn, Ulrich, Racing With or Against the Machine? Evidence from Europe (July 15, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-053. Available at SSRN: https://ssrn.com/abstract=2815469 or http://dx.doi.org/10.2139/ssrn.2815469

Terry Gregory (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
Mannheim, 68161
Germany
+49 (0)621 1235-306 (Phone)

HOME PAGE: http://www.zew.de/en/mitarbeiter/mitarbeiter.php3?action=mita&kurz=TGR

Anna Salomons

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Ulrich Zierahn

Centre for European Economic Research (ZEW) - Labour Markets, Human Resources and Social Policy Department ( email )

P.O.Box 10 34 43
D-68034
Germany

HOME PAGE: http://www.zew.de/MA601-1

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