Technological Unemployment Revisited: Automation in a Search and Matching Framework

Publication Type

Working paper

Authors

Dario Cords, Klaus Prettner

Year of publication

2018

Published in

Hohenheim Discussion Papers in Business, Economics and Social Sciences

Will low-skilled workers be replaced by automation? To answer this question,
we set up a search and matching model that features two skill types of workers
and includes automation capital as an additional production factor. Automation
capital is a perfect substitute for low-skilled workers and an imperfect substitute
for high-skilled workers. Using this type of model, we show that the accumulation
of automation capital decreases the labor market tightness in the low-skilled labor
market and increases the labor market tightness in the high-skilled labor market.
This leads to a rising unemployment rate of low-skilled workers and a falling un-
employment rate of high-skilled workers. In addition, automation leads to falling
wages of low-skilled workers and rising wages of high-skilled workers.