Managing man and machine: Automation potential and labor investment efficiency

Sharif Mazumder and Leonid Pugachev

Global Finance Journal, 2025, vol. 65, issue C

Abstract: We study how a firm's ability to automate affects its labor investment efficiency (LIE). Companies with greater automation potential (AP), measured by share of routine task labor, invest more efficiently. They exhibit both lower propensity to over- and under-invest, as well as lower intensity of over- and under-investment, conditional on its occurrence. Using the catastrophic 2011 Thai flooding as an exogenous shock to AP, we find evidence that the relationship between AP and LIE is likely causal. AP appears to spur (hamper) employment growth in good (bad) economic states. We are the first to show that AP leads firms toward more efficient labor investment.

Keywords: Automation; Labor investment; Labor technology substitution (search for similar items in EconPapers)
JEL-codes: G31 J24 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:65:y:2025:i:c:s1044028325000122

DOI: 10.1016/j.gfj.2025.101085

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