Automation and Labor Demand in European Countries: A Task-based Approach to Wage Bill Decomposition

Abstract

To understand the evolution of labor demand in European countries in the context of automation and other emerging technologies, we apply the decompo-sition developed by Acemoglu and Restrepo (2019) to European data. At the center of this framework is the task content of production – measuring the allo-cation of tasks to factors of production. By creating a displacement effect, automation shifts the task content of production against labor, while the introduction of new tasks in which labor has a comparative advantage increases the labor demand via the reinstatement effect. Contrary to the US experience, in a group of 10 European countries, the displacement effect of automation was completely counterbalanced by technologies that create new tasks in which labor has a comparative advantage. Furthermore, our cross-country comparison reveals a substantial variation across countries. The cumulative change in the task content of production ranges from 6.2% in the United Kingdom to a strong negative effect, namely –7.6%, in Sweden. A part of the differences can be explained by the rate of adoption of industrial robots. We document a strong unconditional relationship between the change in robot density and the displacement effect. However, differences in the reinstatement effect remain unexplained.