Dennis Hutschereiter (Universitat Autònoma de Barcelona and Barcelona GSE), Tommaso Santini (Universitat Autònoma de Barcelona and Barcelona GSE) and Eugenia Vella (Athens University of Economics and Business, Greek and European Economy Observatory at ELIAMEP, and Fundació MOVE)
Abstract: Empirical evidence in Dauth et al. (2021) suggests that industrial robot adoption in Germany has led to a sectoral reallocation of employment from manufacturing to services, leaving total employment unaffected. We rationalize this evidence through the lens of a general equilibrium model with two sectors, matching frictions, and endogenous participation. Automation induces firms to create fewer vacancies and job seekers to search less in the automatable sector (manufacturing). The service sector experiences a positive spillover effect due to the sectoral complementarity in the production of the final good and the positive income effect for the household. Analysis across steady states shows that the reduction in manufacturing employment can be offset by the increase in service employment. The model can also replicate the magnitude of the decline in the ratio of manufacturing employment to service employment in Germany from 1994 to 2014.