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EconPol research questions impact of robotization: new study finds smaller productivity effects and falling wages

Brussels, 19 February 2021: Robotization has significantly lower productivity effects than previously assumed and may cause falling wages, according to a new study from EconPol Europe. The study also rejects previous research findings that the technology causes skill-biased technological change and instead finds the opposite to be true.

The findings are the result of an analysis of data from the International Federation of Robotics (IFR), currently the most widely used data on the economic effects of robotization. The authors of the EconPol study claim that using the data can be misleading if information on sectors that are either unaffected by or only marginally exposed to robotization is combined with those which are heavily affected, such as manufacturing.

Dr. Benjamin Bittschi (EconPol Europe, IHS Vienna), is co-author of the research. “By concentrating only on those sectors that really use robots and excluding the sectors that virtually have no robots we show that previous results have to be reversed,” he says. “In particular, this restriction leads to the fact that we no longer have any effects of the robots on productivity, prices, wages and the skill-composition of the workforce.”

Fears that automation will lead to mass unemployment are a recurring social and economic issue. In recent decades, these fears have been fed by the rapid spread of new technologies such as industrial robots. However, due to lack of data it has not been possible for economists to assess the effects robots have on important economic outcomes such as productivity, prices, wages and the skill-composition of the workforce.

Previous research claims that the contribution of robots to productivity growth is 5% for the period 1993-2007, placing it on a similar level as the steam engine in the nineteenth century, highways in the middle of the twentieth century, and, more recently, ICT. However, based on the new analysis, Bittschi and co-authors find that productivity in the economy as a whole would have been 2% lower in 2007 – not even half the amount claimed by previous research.

When the analysis was repeated using data for 2008-2015, researchers were again unable to detect any significant effects of robotization on productivity, prices, or wages. “We interpret this as an indication that the effects of robotization weaken over time, at least at an aggregate industry level,” says Bittschi.

“Only if demographic factors of the workforce are considered, positive effects on productivity can be found, which supports the idea that the aging process is closely connected to automation,” he adds.

“To interpret our results, it is important to keep in mind that robots have a very low prevalence across all industries, and thus it is not astonishing, in contrast to what one might expect, that there are not necessarily any substantial positive or negative effects for the economy as a whole.

“Additionally, further literature shows that the disruptive potential of current robot technology may have been overstated as it possibly does not represent a break with known automation technologies, but is rather an iteration of the same.”

About EconPol Europe

EconPol Europe – the European network for economic and fiscal policy research – is a network of 14 policy-oriented university and non-university research institutes across 12 countries, who contribute scientific expertise to the discussion of the future design of the European Union. The network’s joint interdisciplinary research covers sustainable growth and best practice, reform of EU policies and the EU budget, capital markets and the regulation of the financial sector, and governance and macroeconomic policy in the European Monetary Union.
The network was founded in spring 2017 by the ifo Institute, along with eight renowned European research institutes. A further five associate partners* were added to the network in January 2019.
The foundation of EconPol Europe was made possible by an initiative of the German Federal Ministry of Finance (BMF) to intensify and deepen cross-border research and cooperation in Europe. The ifo Institute was commissioned by the BMF to set up this independent network, providing evidence-based policy advice to inform the economic and fiscal policy debate in Europe.