Automation Threat and Wage Bargaining (job market paper)


I analyze how the possibility to automate certain occupations impacts wages even in the absence of adoption of the automated technology. I build a multi-occupation search and bargaining model in which firms and workers bargain over wages and some occupations can be automated. A firm that can threaten to automate an occupation instead of hiring a worker has a higher outside option during the bargaining process. Thus, the possibility of automating improves the bargaining outcome of the firm and lowers the wage of the worker. Using data from the Current Population Survey and an index of automatability from the literature I show that, in line with the model, the threat of automation decreases workers’ wages, that this effect is more pronounced in labor markets where union intensity is higher, and that the return to experience in an occupation is affected by the threat of automation. These result suggests that, even if only a small number of firms automate occupations, new automation technologies may still have a large effect on the labor market.