Pedro Mazeda Gil (University of Porto)

joint with Luis Guimarães

We study the effects of an automation-augmenting shock in an economy with matching frictions and endogenous job destruction. In the model, tasks can be produced by workers or by machines but workers have a comparative advantage in producing advanced tasks. Firms choose the input at the time of entry. And according to the evolution of the workers’ comparative advantage, some firms using labor prefer to fire the worker and automate the task. In our model, an automation-augmenting shock reduces the labor share, increases job creation, and increases job destruction. The effects on employment depend on how rapidly workers may lose their comparative advantage: an automation-augmenting shock increases employment in slow-changing environments but reduces it (possibly catastrophically) in rapid-changing ones.

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