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Fed Paper Says Companies May Automate More Jobs During Pandemic

Bloomberg logoBloomberg 5/11/2020 Catarina Saraiva

(Bloomberg) -- While “automation” can be a scary word to some workers, it may actually help mitigate pandemic-fueled job uncertainty and the depth of the recession, according to a working paper by two economists at the Federal Reserve Bank of San Francisco.

As job uncertainty mounts, as seen in the current environment of stay-at-home orders and business closings, demand drops, unemployment increases and inflation falls, Sylvain Leduc and Zheng Liu write in “Can Pandemic-Induced Job Uncertainty Stimulate Automation?” Companies that in turn automate some of the jobs formerly held by humans fuel an increase in labor productivity. That increase partly offsets the recessionary impact of unemployment and falling inflation, Leduc and Liu found.

“Workers can be exposed to health risks, and social distancing measures can reduce labor productivity by hindering the ability to work. But robots do not get sick,” Leduc and Liu wrote in the paper, posted on the San Francisco Fed’s website on May 8. “If a production process can be automated, a firm can use a robot instead of a worker to perform some risky tasks. In this sense, automation provides a hedge against job uncertainty stemming from the pandemic.”

Surging Unemployment

Employers cut a record 20.5 million jobs in April as state and local officials shut down everything from restaurants to factories in an effort to contain the spread of the disease.

Leduc and Liu warn that the pandemic could have long-term ramifications, as the possibility of future waves of outbreaks, and renewed stay-home orders, may weigh on uncertainty.

“Anticipating potential future disruptions from the pandemic, households and firms may postpone long-term decisions, such as investment and hiring. The pandemic-induced uncertainty can thus have potentially important consequences for the depth of the downturn and the strength of the recovery.”

They also note that depressed demand does reduce the incentive for companies to invest in automation, but their analysis shows that, overall, the probability of automation increases with job uncertainty.

“Absent the automation channel, an uncertainty shock would lead to a much deeper recession, with a sharper increase in unemployment and a larger decline in inflation,” they wrote.

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