Automation is the use of machines, software, or algorithms to perform tasks that previously required human labor. In economics, it matters because it changes productivity, production costs, and the demand for different types of labor.
Core economic mechanisms
Automation tends to operate through several channels:
- Productivity effect: if the same output can be produced with fewer inputs, output per worker can rise.
- Substitution: some tasks shift from labor to capital/software, reducing demand for the workers who specialized in those tasks.
- Complementarity: demand can rise for workers and inputs that complement the new technology (design, maintenance, data work, management).
- Task reallocation: jobs are bundles of tasks; automation often replaces tasks within jobs rather than eliminating entire occupations.
Distributional and macro implications
Who gains from automation depends on institutional and market structure details (bargaining power, labor mobility, market concentration, and ownership of capital). Automation can raise aggregate income while still creating displacement and wage pressure in specific groups.
Practical example
If a warehouse introduces robots for picking and sorting, throughput may rise and unit costs may fall. The firm may hire fewer entry-level pickers, but hire more technicians and supervisors. In the local labor market, the mix of jobs and wages can change even if overall output rises.
Related Terms
- Productivity
- Technological Unemployment
- Unemployment
- Labour Market
- Human Capital
- Creative Destruction
- Capital
- Division of Labour