Looking Ahead at the Effects of Automation in an Economy with Matching Frictions

We look at how advances in AI and Robotics will affect employment in an economy with matching frictions and endogenous job destruction. In the model, tasks can be produced by workers or by machines. Workers have a comparative advantage in producing advanced tasks but machines tend to catch up with labor, leading to automation. To calibrate the model, we rely on predictions in the literature about the expected share of automated jobs due to AI and Robotics. Our model suggests that these technological innovations will raise job destruction but also job creation. Therefore, they may reduce long-run employment but not massively. Furthermore, employment will likely rise if consumers value human interactions (human touch) as the relative price of labor tasks increases with widespread usage of machines. Regarding policy, our model suggests that an automation tax trumps a robot tax