Industrial robots and employment change in manufacturing: A combination of index and production-theoretical decomposition analysis

This paper investigates the contribution of industrial robots to employment change in manufacturing in a sample of 17 European countries and the USA over the period 2004 to 2019. We combine index decomposition analysis (IDA) and production-theoretical decomposition analysis (PDA). First, we use IDA to decompose employment change in the manufacturing industry into changes in (aggregate) manufacturing output, changes in the sectoral structure of the manufacturing industry, and changes in labour intensity which is a composite index of labour intensity change within each of the nine sub-sectors of total manufacturing. Second, we use PDA to further decompose labour intensity change to isolate the contribution of technical efficiency change, technological change, human capital change, change in non-robot capital intensity and change in robot capital intensity to employment change. In almost all of the countries considered, the labour intensity is falling in entire manufacturing, which has a dampening effect on employment. Robotisation contributes to this development by reducing labour intensities and employment in all countries and sub-sectors, though to varying degrees. Manufacturing output, in turn, grows in all countries (except Greece, Spain and Italy), which increases employment and counteracts or in some countries even more than offsets the dampening effect of declining labour intensities. The structural change within manufacturing has an almost neutral effect in many countries.