Automation and Jobs: When Technology Boosts Employment

Will new technologies cause industries to shed jobs, requiring novel policies to address mass unemployment? Sometimes productivity-enhancing technology increases industry employment instead. In manufacturing, jobs grew along with productivity for a century or more; only later did productivity gains bring declining employment. What changed? The elasticity of demand. Using data over two centuries for US textile, steel, and auto industries, this paper shows that automation initially spurred job growth because demand was highly elastic. But demand later became satiated, leading to job losses. A simple model explains why this pattern might be common, suggesting that today’s technologies may cause some industries to decline and others to grow. Automation might not cause mass unemployment, but it may well require workers to make disruptive transitions to new industries, requiring new skills and occupations.