Automation, Bargaining Power, and Labor Market Fluctuations

Sylvain Leduc and Zheng Liu

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 4, 311-49

Abstract: We argue that the threat of automation weakens workers' bargaining power in wage negotiations, dampening wage adjustments and amplifying unemployment fluctuations. We make this argument based on a business cycle model with labor market search frictions, generalized to incorporate automation decisions. In the model, procyclical automation threats create endogenous real wage rigidity that amplifies labor market fluctuations. The automation mechanism is consistent with empirical evidence. It is also quantitatively important for explaining the large volatilities of unemployment and vacancies relative to that of real wages, a puzzling observation through the lens of standard business cycle models.

JEL-codes: E13 E24 E32 J31 J63 J64 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Automation, Bargaining Power, and Labor Market Fluctuations (2022)
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DOI: 10.1257/mac.20220181

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