Automation in a Business Cycle Model: Insights from RANK

Abstract

This paper studies the business cycle implications of automation. It incorporates task-based production and a Ricardian labor market in the RANK model. Automation operates via labor displacement and productivity gains, captured by sufficient statistics describing the morphology of factor productivities. When nominal rigidities interact with frictions in capital supply, automation amplifies labor displacement, lowers the real wage instead of raising it, attenuates productivity gains, and leads to a negative output gap compared to its impact under flexible prices. These responses are aligned with empirical evidence and separate automation from other aggregate shocks. The labor income share drops regardless price rigidities. Labor market imperfections, be it sticky wages or search-and-matching frictions, further amplify the labor displacement and attenuate the productivity gains. Technological expansions under nominal rigidities, contractionary monetary policies, as well as cyclical wage increases stemming, possibly, from market power lead to inefficient automation.

Keywords: automation, robots, inflation, monetary policy

JEL Classification: E24, E25, E32, E52, O33