How Automation that Substitutes for Labor Affects Production Networks, Growth, and Income Inequality

66 Pages Posted: 1 Oct 2019 Last revised: 7 Jul 2020

See all articles by Matthew O. Jackson

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Zafer Kanik

University of Glasgow

Date Written: September 19, 2019


We study how advances in labor-substituting (automation) technologies affect production networks. Labor-substituting advances lower the wages of substitutable workers relative to non-substitutable workers, affecting employment in the entire economy, well beyond the production chains adopting the new technologies. As automation progresses, the production network becomes denser, increasing the centralities of producers of automation and their (direct and indirect) suppliers. The growth effects of automation emerge gradually, and the changes in income inequality and overall productivity depend on (i) alternative uses of the replaced labor, and (ii) sectoral compositions of substitutable and non-substitutable workers. These provide explanations for why today's automation is different from historical ones.

Keywords: Automation, AI, Growth, Input-Output Analysis, Inequality, Productivity, Production Networks, Reallocation of Labor, Labor Displacement, Technology

JEL Classification: D85, E23, E24, E32, F43, J31, O33, O41

Suggested Citation

Jackson, Matthew O. and Kanik, Zafer, How Automation that Substitutes for Labor Affects Production Networks, Growth, and Income Inequality (September 19, 2019). Available at SSRN: or

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)


Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Zafer Kanik

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

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