Leon Huetsch, University of Pennsylvania (Job Market Seminar)

“Technological Change and Unions: An Intergenerational Conflict with Aggregate Impact”

Abstract

Technological progress in the form of automation boosts productivity, but can cause adverse labor market outcomes for transitional generations. I study the role of unions, and labor adjustment frictions more broadly, in shaping the evolution of wages and employment of workers exposed to labor replacement during the automation transition. Using variation across local labor markets in the U.S. since 1980, I first document that unionization gives rise to intergenerational redistribution by shifting the incidence of wage and employment decline from older, incumbent to young, incoming cohorts. Moreover, unions accelerate the overall employment decline in automating occupations, thereby inducing faster labor reallocation. I develop a quantitative equilibrium model of technological change and unionization that jointly rationalizes the two empirical observations through the impact of union-imposed firing costs on firms’ intertemporal choice how to optimally adjust their workforce over time when gradually adopting automation. Within automating occupations, unions reduce the welfare cost of automation of older workers along the transition by up to 4% of permanent consumption by lowering their layoff risk and wage decline. The impact is shifted to young workers, raising the welfare costs of cohorts entering during the transition by up to 2%. Incoming workers endogenously respond to automation by entering non-adopting occupations which limits the welfare impact on them. The impact of high unionization spills over into non-adopting occupations as the accelerated reallocation of labor depresses wages there.

Contact person: Morten Graugaard Olsen