Discussion Papers
Innovation and Entrepreneurship Research
Innovation and Entrepreneurship Research
Monopsony and Automation
(2023). Monopsony and AutomationMax Planck Institute for Innovation & Competition Research Paper No. 23-21.
We examine the impact of labor market power on firms’ adoption of automation technologies. We develop a model that incorporates labor market power into the task-based theory of automation. We show that, due to higher marginal cost of labor, monopsonistic firms have stronger incentives to automate than wage-taking firms, which could amplify or mitigate the negative employment effects of automation. Using data from US commuting zones, our results show that commuting zones that are more exposed to industrial robots exhibit considerably larger reductions in both employment and wages when their labor markets demonstrate higher levels of concentration.