The Impacts of AI, Robots, and Globalization on Labor Markets: Analysis of a Quantitative General Equilibrium Trade Model

Abstract

This paper analyzes the impact of robotics and AI on labor markets in the world economy using a quantitative general equilibrium trade model with inter-industry linkages where robots can perform low-skilled labor’s tasks and AI high-skilled labor’s tasks. We estimate country-industry-level robot income shares in low-skilled task production and industry-level elasticities of substitution between robots and low-skilled labor. Then, we simulate the counterfactual world economy in 2014 where robot-related technology and international trade costs are set at their 1993 levels. We find that robot technology’s effect on labor markets is much smaller than the trade liberalization effect, yet, the former is sizable in the most affected industries. We also simulate the future world economy in which the task productivity of robots and AI becomes ten times its 2014 level and find that the impact of AI on the economy would be smaller than that of robotics.