The impact of automation on inequality across Europe

Existing research suggests that automation has the potential to impact inequality through two channels, either by changing the relative wage returns for different sets of tasks or by changing the composition of employment. This paper measures the relative importance of these two channels for a sample of European countries by decomposing the effects of a set of characteristics along these two dimensions using the structure of earnings survey (SES) and data for 2002 and 2014 Firpo et al. (2018). The approach isolates changes in the earnings distribution to identify the component that is due to changes in composition and to changes in the wage structure. We find that the risk of automation has the largest impact on inequality in our sample of European countries. The composition effect explains a large part of automation related inequality in all of the countries, but the wage effect is also relevant in half of the countries. These results confirm that the way in which technology is increasing inequality is largely due to the fact that there is a growing wage dispersion between jobs that are resilient to automation and those that are not.

JEL classifications: 03, J3, J31, D63

Keywords: Inequality, Technological Change, Labor Markets, Wage Structure