The societal consequences of labor demand shocks

Karim Bekhtiar

Advisor: Rudolf Winter-Ebmer
Institution: Johannes Kepler University, Linz – Department of Economics
Start: 2018

This dissertation is partly funded by the Jubiläumsfonds of the Oesterreichische Nationalbank, grant number 18462, “Technological Change, Internal Migration and the Depopulation of Rural Areas".

Automation and globalization have contributed to major shifts in the structure of labor demand in recent decades. While overall employment and economic welfare generally increased during this time, most developed economies experienced a shift away from industrial production towards more service oriented economies. This large and persisting shift in the structure of labor demand has societal ramification that go beyond its mere labor market impact. To develop a better understanding of how these economic shocks feed back into society, this thesis examines the incidence, as well as the economic and societal consequences of labor demand shocks.

The first chapter - which is an extended replication study of the influential work of Graetz and Michaels (2018) - discusses challenges that arise when analyzing the effects of industrial robotization using industry level data. It shows how the estimated effects of industrial robotization on a host of different outcome variables may change quite drastically when restricting the estimation sample to those units which are actually exposed to robotization, i.e. the manufacturing industries. This is especially the case for estimated productivity effects, which are drastically reduced in size, and for labor market effects, which may change in their interpretation entirely. This chapter is available as a pre-print here, while an updated working paper version is available here.

In the second chapter the focus is shifted from economic outcomes towards societal ones, and from the industry level to the regional level. In particular, the analysis presented in this chapter regards the internal migration responses to the robotization shock in Austrian local labor markets. The results indicate that industrial robotization has led to a pronounced decrease in labor demand, which in particular hampers the employment prospects of young workers entering the labor market. These young workers respond to this labor demand shock by increased out-migration. As employment in the manufacturing industries is of relatively stronger importance in more rural local labor markets, the majority of these automation induced migratory responses is directed from rural areas towards the cities. Industrial robotization thus makes a sizable contribution to rural-to-urban migration and thereby contributes to rural decline. This chapter has been published as a pre-print in the IHS-Working Paper Series. An updated version is available here.

The third chapter focuses on the political consequences of the decline in manufacturing employment. This strong and persisting structural shift in labor demand - which is tightly connected to the rise of automation technologies and increased international trade exposure – has also contributed to shifts in the political landscape. In particular, eroding employment prospects of natives have made a strong contribution to the electoral success of far-right political parties in Austria. This effect is entirely driven by increases in natives’ unemployment rates, which increased considerably due to the manufacturing decline. Regarding the influences of the forces underlying the manufacturing decline, namely international trade and automation technologies, suggests that both forces contributed in roughly equal parts to this development. This chapter has also been published as an IHS-Working Paper, and is frequently updated in response to feedback from the peer-review process (updated version is available here).