Automation, Work and Productivity: The Role of Firm Heterogeneity

We construct an oligopolistic model with heterogeneous firms where new automation technologies displace workers. We show that both leading and laggard firms increase their productivity when automating—but only laggards increase employment of automation-susceptible workers. We test the model’s predictions using Swedish matched employer—employee data combined with a novel firm-level automation measure of worker exposure to new technologies. Our empirical results strongly support a relationship between workforce exposure to automation and productivity that varies by firm type. Consequently, a diversity of firm types may function as insurance against excessive labor demand reductions in periods of fast technological change.